Virgin Active seeks High Court sanction for restructuring plan

Gym group Virgin Active is asking the High Court to formally approve a restructuring plan that will hit landlords of certain premises. A group of affected landlords is opposing the plan at a sanction hearing that is scheduled to run until Tuesday. It is expected that Mr Justice Snowden’s judgment will follow swiftly thereafter, by 10 May, at which point the company is due to run out of liquidity and may otherwise be forced into administration. Tom Smith QC, representing various Virgin Active group companies, told the judge that an “ad hoc” group of landlords object to the plan, and dispute whether a key test – whether they would be no worse off under the proposed restructuring than under the alternative – has been satisfied. He added that the other main question for the court was whether it is “just and equitable” to exercise its discretion to sanction the plan. The plan, if approved, will see some leases of poorly performing gyms terminated, and certain other landlords being paid less in rent. Virgin Active sites have been split into five categories, based on profitability (with the fifth category being premises that have been sublet). Smith explained at a previous hearing that 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. Julie Gattegno, partner at CMS, said: “As the first sanction hearing of a plan seeking to use the cross-class cram-down to force compromise of lease liabilities on dissenting landlords, the outcome will be incredibly important to understanding how this new tool works in practice and how it can be used by corporate tenants to impose plans on landlords. Needless to say, it will be very closely watched.” To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette Photo by Virgin Active