Hogan Lovells advises senior secured lenders on Virgin Active's landmark restructuring plans

London, 12 May 2021 – Following a five-day sanction hearing, Snowden J in the High Court has today sanctioned three inter-conditional restructuring plans for certain English subsidiaries in the Virgin Active group: Virgin Active Limited, Virgin Active Holdings Limited and Virgin Active Health Clubs Limited. These were the first fully contested restructuring plans since the new Part 26A of the Companies Act 2006 procedure was introduced last year. The restructuring plans include the most extensive cram down seen so far (five creditor classes in each of the three plan companies were subject to the cram down) and are the first to compromise lease liabilities. 

The Hogan Lovells’ London Restructuring team working on the matter was led by London partners Tom Astle and James Maltby with support from Naomi Parmar (Senior Associate), Lucy Xu (Senior Associate), Isabel Langlois (Associate), Ben Lewis (Associate) and Maria Teresa Vitiello (Trainee). In addition to the London team, the transaction involved our Sydney, Amsterdam, Singapore, and Milan offices on local aspects, reflecting the global nature of this business and our practice. They advised the senior secured lenders who are extending their facilities and making certain amendments to support cashflow whilst the business recovers from the impact of COVID-19. 

Tom Astle (Partner and Head of Restructuring) says, “We are delighted to have achieved this successful outcome for our clients, whose support has seen the successful recapitalisation and rescue of the Virgin Active business in a period of unprecedented turmoil in its sector. It is one of a number of restructuring plans on which Hogan Lovells has had a key role, but the first of its kind using the cross-class cram down in relation to leases. The plan was fiercely contested in some quarters and is now the market leading precedent in this area.” 

Each of the three inter-conditional restructuring plans included seven creditor classes: (i) the senior secured lenders; (ii) the UK landlords, categorised in classes A to E; and (iii) a class of other general unsecured property creditors. As well as the changes to the senior facilities, the restructuring plans involve waivers and deferrals of rent arrears, reductions in rents and compromises of the claims of general property creditors. Snowden J convened meetings of the plan creditors on 29 March 2021 and the plan meetings took place on 16 April 2021 at which the secured lenders and the class A landlord creditors approved the plans but the other classes of landlord creditors (B through E) and the general property creditors dissented. The plan companies requested the Court to cram down the dissenting classes to sanction the restructuring plans. The restructuring plans form part of a wider restructuring of the Virgin Active group’s European & Asia Pacific businesses that included a £45m shareholder injection and certain deferrals under the arrangements relating to the Virgin brand licence.

An ad hoc group of four landlords opposed the restructuring plans at both the convening and sanction hearings. They argued that there was insufficient evidence to show that the “no worse off” test under section 901G of the Companies Act 2006 had been satisfied and that the Court should not use its discretion to sanction the plans because the treatment of the landlords under the plans was not just and equitable.  Both of these arguments ultimately failed. 

James Maltby (Partner in the Hogan Lovells’ London Restructuring team who led the work on the restructuring plans alongside Tom Astle) says, “The case shows the power of the new restructuring plan process to deliver restructurings across all levels in the capital structure.  This is the leading case so far on cross-class cram down and will provide valuable guidance on the key issues relating to the relevant alternative and the exercise of the court’s discretion to sanction plans with dissenting classes.” 

Since the introduction of the new restructuring plan under the Corporate Insolvency and Governance Act 2020 only a handful of companies have used the new restructuring process to restructure their affairs. The Hogan Lovells London Restructuring team advised the lenders on two out of the three restructuring plans involving a cram down – the other transaction was Smile Telecom which was sanctioned in March.

Details of the judge’s reasons to follow.

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