A High Court judge today approved the classes of creditors that will be asked to vote on a restructuring plan for gym group Virgin Active that will hit landlords of certain premises.
The plan – which, if approved, will see some leases of poorly performing gyms terminated, and certain other landlords being paid less in rent – will now proceed to a creditors’ vote to be scheduled, with the threshold for approval being 75% in value (gross value of debt) of creditors in each class who vote. Through a controversial process known as “cross-class cramdown”, the plan can still be approved by the court based on the support of higher classes of creditors, even if it fails to secure the necessary support from lower classes of creditors.
Following the vote, the matter will return to the High Court for an official sanction, at which point affected landlords are expected to raise issues of fairness.
Tom Smith QC, representing various Virgin Active group companies, told judge Mr Justice Snowden that the restructuring plan has been put forward as a means of allowing the company to continue to operate as the country exits lockdown, and avoid going into administration. Under the plan, he said that its sites had been split into five categories, based on profitability (with the fifth category being premises that have been sublet).
The landlords of the “most critical” sites in class A will see no impairment, with the only change being that rent would now be paid monthly rather than quarterly. Class B landlords would see no impairment going forward, but outstanding rent arrears would be discharged with a payment equivalent to 120% of what they could be expected to recover in an administration. Outstanding rent would be treated the same for class C sites, but in addition future rent would be reduced by 50%, with landlords receiving a break right. For the loss-making class D sites, those leases would be terminated under the plan.
Trade creditors and employees would be paid in full under the plan.
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