A High Court judge has approved Fitness First’s restructuring plan. This paves the way for the beleaguered gym chain to close some premises and pay landlords lower rents.
Mr Justice Michael Green gave judgment green-lighting the so-called scheme of arrangement today (29 June), following a two-day hearing at the Rolls Building in London.
Five landlords, including Lazari Properties and the Crown Estate, opposed the deal, saying they wanted more time for negations. However, at the hearing Fitness First argued that the alternative to the plan is administration and, as the landlords are unsecured creditors, they stand to lose all their money.
According to court papers, Fitness First has divided its 40 locations into six classes (A, B1, B2, B3, C and D) based on the profitability of the location.
It proposes that landlords of class-A properties will have no changes to their terms. Class-D properties will be vacated, and all other properties will see a decrease in rent of 30-60% for a three-year period.
In court papers, the gym said it was “disappointing” that the five landlords are opposed, “even though the plan improves their economic position by comparison with the (inevitable) alternative of insolvency”.
The British Property Federation said it had concerns about the use of restructuring plans to alter the terms of leases, saying they should be a “tool of last resort.”
Dominic Curran, assistant director at the BPF, said: “We support the UK’s rescue culture but are concerned that if restructuring plans are abused they can enable businesses to terminate leases and cut rents with little consultation and limited financial disclosure to justify why they are needed.
“Property owners generally have a good relationship with their tenants and reduced or even waived rent during the pandemic to enable businesses to keep trading and protect jobs. Rents have been rebased over the past decade and leases today will reflect current market conditions.
“Restructuring plans should be a tool of last resort and should only be implemented if there is proper engagement and co-operation with impacted creditors.”
According to court papers, the gym chain, which was profitable before the Covid-19 pandemic, has been hit hard by changing fitness trends caused by the pandemic. It is being kept afloat by almost £15m of shareholder funding.
However, the papers stated that “the most recent funding was subject to a condition that the group pursue a restructuring to put it back on a viable footing. Absent this condition being satisfied, the group will not be able to access the funding which it needs for its operations and will go into administration.”
The business owes its primary secured creditors almost £19m and HMRC more than £500,000. The landlords are unsecured creditors.
The business is privately held, with 75% of the shares owned by Jayne Best, the daughter of sportswear tycoon Dave Whelan, and the rest owned by other family members.
In the matter of Fitness First Clubs Ltd
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