|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Virgin Active Holdings Ltd & Ors, Re Part 26A of The Companies Act 2006  EWHC 814 (Ch) (01 April 2021)
Cite as:  EWHC 814 (Ch)
[New search] [Context] [View without highlighting] [Printable PDF version] [Help]
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
London, EC4A 1NL
B e f o r e :
|IN THE MATTERS OF|
|VIRGIN ACTIVE HOLDINGS LIMITED|
|VIRGIN ACTIVE LIMITED|
|VIRGIN ACTIVE HEALTH CLUBS LIMITED|
|AND IN THE MATTER OF PART 26A OF THE COMPANIES ACT 2006|
(instructed by Allen & Overy LLP) for the Applicant Companies
Robin Dicker QC and Georgina Peters
(instructed by Sullivan & Cromwell LLP) for an Ad Hoc Group of Landlords
Richard Fisher QC (instructed by Ince) for Riverside Crem 3 Limited
Simon Passfield and Samuel Parsons
(instructed by Browne Jacobson LLP) for Pure Gym Limited
Alec McCluskey (instructed by Wallace LLP) for Mr. Sol Unsdorfer
Hearing dates: 25, 26 and 29 March 2021
Crown Copyright ©
COVID-19: This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on BAILII and other websites. The date and time for hand-down is deemed to be 10.30 a.m. on 1 April 2021.
MR JUSTICE SNOWDEN :
The Plan Companies
The Plan Creditors
i) Hammersmith and Fulham LBC, to which VAHCL has given a covenant to provide a public swimming pool at the Fulham club, which it would be unable to fulfil if the Lease of that club were to be terminated;
ii) the landlords of five leases in Spain and Portugal entered into by entities that used to be subsidiaries of VAHL who have guarantee claims. These are unsecured and are governed by either English law or the law of the country in which the relevant club is located;
iii) any of the Landlords which exercises its rights to forfeit a Lease before the voting record time under the Plans (with the result that the Landlord would no longer be a Landlord in respect of the Lease in question, but would simply be an unsecured creditor);
iv) the sub-tenants of six Leases where VAL or VAHCL has agreed to pay the shortfall between the rent and service charges payable under the relevant sub-lease and the Lease (the "Subsidised Sub-Tenants");
v) the counterparties in respect of two agreements relating to car parking for the clubs in Wandsworth and Solihull; and
vi) the manager appointed by the First Tier Tribunal to manage the Canary Riverside complex (the "Manager"). That is a mixed estate comprising both residential and commercial units, including the premises from which VAHCL operates the Canary Riverside club. The orders appointing the Manager require him to comply with the obligations of the Landlord including as to provision of services, and in that respect to be able to recoup his expenses of so acting from service charges. The Manager contends that he is owed a substantial sum in respect of the provision of electricity and other services to VAHCL.
The Group's financial difficulties and the proposed Restructuring
The Relevant Alternative to the Plans
The Secured Lenders
i) Class A Landlords:a) All rent arrears will be paid within three business days of the Restructuring Effective Date.b) During a "Rent Concession Period" of up to three years, fixed rent due under the Lease (the "Contractual Rent") will be paid monthly in advance.c) At the end of the Rent Concession Period, payments will revert so that they are made in accordance with the terms of the relevant Lease.
ii) Class B Landlords:a) All outstanding rent arrears will be released and discharged, in return for a payment of the Restructuring Plan Return.b) During the Rent Concession Period, Contractual Rent will be paid monthly in advance.c) At the end of the Rent Concession Period, payments will revert so that they are made in accordance with the terms of the relevant Lease.
iii) Class C Landlords:a) All outstanding rent arrears will be released and discharged.b) During the Rent Concession Period (which for Class C Landlords may end sooner than three years if the club in question returns to 2019 levels of profitability), Contractual Rent will be cut by 50%.c) There will be a deferral of payments of such reduced Contractual Rent until 1 January 2022 and such rent will then be paid in 60 equal monthly instalments commencing on 1 January 2022.d) The reduced Contractual Rent for the period from 1 January 2022 to the end of the Rent Concession Period shall be paid at monthly intervals in advance.e) No rent shall be payable for any period during the three year period after the Restructuring Effective Date in which the relevant premises are required to be closed for any continuous period of at least 28 days as a result of any government regulation imposed in relation to COVID-19.f) At the end of the Rent Concession Period, payments will revert so that they are made in accordance with the relevant Lease.g) Each Class C Landlord will be entitled to terminate their Lease on 30 days' notice, provided that the Notice to Vacate is delivered within 90 days of the Restructuring Effective Date. If a Class C Landlord exercises this break right, the relevant Plan Company will pay 30 days' worth of its Contractual Rent and rent relating to turnover (if any). If and to the extent that this payment is insufficient to provide the relevant Class C Landlord with a Restructuring Plan Return, the relevant Class C Landlord will be entitled to receive a further payment to make up the shortfall.
iv) Class D Landlords:a) From the Restructuring Effective Date, no past, present or future rent, service charge, insurance or other liabilities will be payable and the relevant Plan Company will no longer have any obligations towards them. In exchange, each Class D Landlord will be entitled to a Restructuring Plan Return.b) Each Class D Landlord will have a rolling break right exercisable on 30 days' notice. If a Class D Landlord serves a Notice to Vacate within six months of the Restructuring Effective Date, the relevant Plan Company will pay 30 days' worth of Contractual Rent and, to the extent that this payment is insufficient to provide the relevant Class D Landlord with a Restructuring Plan Return, they will be entitled to receive a further payment to make up the shortfall.
v) Class E Landlords:a) From the Restructuring Effective Date, no past, present or future rent, service charge, insurance or other liabilities will be payable and the relevant Plan Company will no longer have any obligations under the Lease. In exchange, each Class E Landlord will be entitled to a Restructuring Plan Return.b) The relevant Plan Company will pay to the relevant Class E Landlord any amounts for Contractual Rent, any amounts in respect of turnover-related rent and amounts in respect of service charge and insurance in respect of the Class E Premises received from any sub-tenant.c) Each Class E Landlord will have a rolling break right exercisable immediately on or after the Restructuring Effective Date. This right can be exercised by serving a Notice to Vacate.
General Property Creditors
Payment of Restructuring Plan Return
Notice of the convening hearing
The threshold conditions under Part 26A
"(1) The provisions of this Part apply where conditions A and B are met in relation to a company.
(2) Condition A is that the company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern.
(3) Condition B is that—
(a) a compromise or arrangement is proposed between the company and—
(i) its creditors, or any class of them, or
(ii) its members, or any class of them, and
(b) the purpose of the compromise or arrangement is to eliminate, reduce or prevent, or mitigate the effect of, any of the financial difficulties mentioned in subsection (2).
(4) In this Part ... "company" ... means any company liable to be wound up under the Insolvency Act 1986 ..."
Condition A: section 901A(2)
Condition B: section 901A(3)
i) the Senior Facilities Agreement will be amended and extended, with a new maturity date and interest rate structure;
ii) the obligations of the Plan Companies to the Landlords under the Leases will be varied, the extent of that variation depending on the Class to which the relevant Lease belongs; and
iii) the liabilities to General Property Creditors will be released in return for a payment of the Restructuring Plan Return.
The legal principles
"In each case the answer to that question will depend upon analysis (i) of the rights which are to be released or varied under the scheme and (ii) of the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be released or varied."
"The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their own private interests not derived from their legal rights against the company is not a ground for calling separate meetings … The question is whether the rights which are to be released or varied under the scheme or the new rights which the scheme gives in their place are so different that the scheme must be treated as a compromise or arrangement with more than one class."
"… a broad approach is taken and that the differences may be material, certainly more than de minimis, without leading to separate classes."
"whatever the Court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned".
The proposed classes
i) In some cases, the same entity will be the Landlord in respect of a number of Leases which fall into different classes. In that case the entity will vote in respect of their claim in relation to the relevant Lease in each class.
ii) For some Leases, VAL is the tenant; for other leases, VAHCL is the tenant. VAHL is not a tenant of any Leases, but some of the Leases are guaranteed by VAHL. It is proposed that each Landlord will vote on the Plan proposed by each Plan Company which is a debtor of that Landlord, whether as tenant or guarantor.
The Secured Creditors
The General Property Creditors
The form of the Explanatory Statement
The requirements for an explanatory statement
"14. Explanatory statements should be in a form and style appropriate to the circumstances of the case, including the nature of the member and/or creditor constituency, and should be as concise as the circumstances admit. In addition to complying with the provisions of section 897 … the commercial impact of the scheme must be explained and members and/or creditors must be provided with such information as is reasonably necessary to enable them to make an informed decision as to whether or not the scheme is in their interests, and on how to vote on the scheme. Where a document is incorporated into the explanatory statement by reference, readers should be directed to the material part(s) of the document.
15. The court will consider the adequacy of the explanatory statement at the convening hearing. The court may refuse to make a meetings order if it considers that the explanatory statement is not in an appropriate form. However, the court will not approve the explanatory statement at the convening hearing, and it will remain open to any person affected by the scheme to raise issues as to its adequacy at the sanction hearing."
"59. In the context of a scheme for creditors which is put forward as an alternative to a formal insolvency process, it is certainly conventional for the scheme company to seek to fulfil these information requirements by putting forward a detailed analysis which estimates the likely returns for scheme creditors in such an insolvency and under the scheme, together with the likely timescales for such recoveries. That is because the reasonable creditor deciding how to vote, and the court which is asked to exercise its discretion to sanction the scheme in the interests of all creditors, will at the very least require to be satisfied that all creditors are being offered a realistic prospect of receiving a greater or faster return under the scheme than they are likely to receive in the alternative if the scheme is not sanctioned: see per David Richards J in In re T & N Ltd  2 BCLC 488, para 82 and my own observations to similar effect in In re Noble Group  2 BCLC 548, para 90.
60. But that is the bare minimum. The reasonable creditor will also want to be provided with the necessary information to understand how any different groups of creditors and any other relevant stakeholders are treated under the scheme and in any wider restructuring in order that he can reach an informed view upon whether the losses which have been suffered and the available value are being appropriately allocated between stakeholder groups.
61. So, for example, if creditors which would rank equally in a formal insolvency are being differently treated under the scheme, or are being left out of the scheme altogether so that they are not being required to accept a compromise of their claims at all, this should be fully disclosed and properly explained: see Virgin Atlantic Airways Ltd  EWHC 2376 (Ch) at .
62. Such factors will also be particularly relevant in a scheme or restructuring such as the instant case in which the existing shareholders, who would, by definition, receive nothing in a formal insolvency, are being permitted to retain a material stake in the restructured company. In such a case it is likely to be essential for the scheme company to provide a detailed statement of the underlying assumptions and valuation methodology that are said to justify such an outcome so that creditors can reasonably assess, objectively, whether the allocation of losses and the division of benefits among stakeholders is appropriate and fair."
The arguments in outline
i) The Excel spreadsheet referred to in Deloitte's Relevant Alternative Report as the "Entity Priority Model" or "EPM" which Deloitte used to generate the results which fed into the calculation of the Estimated Administration Returns. It was said that access to this model would enable the advisers to the AHG to audit and verify Deloitte's calculations and assumptions.
ii) The Group's latest 5 year business plan with supporting excel model and underlying assumptions, broken down on a site-by-site basis. It was contended that the Explanatory Statement contained only a high-level summary and that more detailed information would enable the Landlords to evaluate the viability of the Group and the relevant alternative.
iii) The Group's full 13-week and 12-month cashflow forecasts, including a full geographical split, details of line items and assumptions underlying the line items. It was contended that this would enable an assessment of whether the Business Plan was reasonable.
iv) The Group's historical financial statements, including full monthly management accounts, broken down site-by-site for 2019, 2020 and Q1 2021 so as to enable Landlords to assess whether the Group's forecasts and business plans are reasonable by reference to past performance. Mr. Fisher QC added that this information was particularly relevant given that the allocation of Leases to particular Classes had been made on the basis of the profitability of the site in question during 2019.
v) An aged creditor analysis broken down supplier by supplier in order to assess the liquidity needs of the Group's business.
vi) Details of the VA Group's defined benefit pension scheme and any deficit which might affect the EPM or the Group's business plan.
vii) Copies of Deloitte's engagement letter and fee arrangements.
i) The EPM was a work product of Deloitte used to prepare the Relevant Alternative Report, and under the terms of Deloitte's engagement, the Plan Companies had no right to it. The Relevant Alternative Report was itself detailed and contained all the information that Plan Creditors could reasonably require to understand the likely alternatives to the Plans and the level of the Estimated Administration Returns. Deloitte was nonetheless willing to meet the AHG's adviser, PwC, to answer questions concerning the EPM.
ii) The Group's detailed business plan was a highly commercially sensitive document and the business of the Group would be damaged if it were simply to be provided without restriction to Plan Creditors in, or as an appendix to, the Explanatory Statement. Recognising, however, that the business plan might be relevant to litigation over the cram-down at sanction, the Plan Companies were prepared to provide it on a restricted basis to a "confidentiality club" consisting of the legal and accountancy advisers to the AHG if suitable undertakings were given.
iii) Summary cashflow forecasts were included in the Explanatory Statement, but the Group's detailed cashflow forecasts were highly commercially sensitive and were irrelevant to the consideration by the Plan Creditors of the comparator or relevant alternative to the Plans. The short-term cashflow forecast was only relevant (if at all) to the urgency and timing of the Plans.
iv) The historical financial information from 2019 to date on a site-by-site basis was highly commercially sensitive and in particular would be damaging to the Group if available to be used by competitors or individual Landlords in subsequent rent negotiations. Due to its age and the intervening pandemic, such information was not necessary to assess the reasonableness of the Group's future forecasts and business plans.
v) The aged creditor analysis was not relevant to enable Plan Creditors to assess the Estimated Administration Returns, and was only relevant (if at all) to the urgency and timing of the Plans.
vi) Details of the pension scheme were included in the Explanatory Statement, there was no deficit in the pension scheme as at the last valuation (as disclosed in the audited accounts), and hence it could have no effect upon the Estimated Administration Returns. This could be made clear in an addition to the wording of the Explanatory Statement.
vii) The terms of engagement of Deloitte were confidential and not necessary to enable Plan Creditors to assess the Relevant Alternative Report. A statement could be included in the Explanatory Statement (for the avoidance of doubt) that such terms did not include a success fee. If required, the terms could be made available on a confidential basis to the legal and advisers to the AHG to enable them to verify that this was so (and also to check the status of the EPM).
The Plan Meetings and timetable
The evidence on urgency
The mechanics of the Plan Meetings