Virgin Active Holdings Ltd & Ors, Re Part 26A of The Companies Act 2006

This is an application on behalf of Virgin Active Holdings Limited (“VAHL”), Virgin Active Limited (“VAL”) and Virgin Active Health Clubs Limited (“VAHCL”) (together the “Plan Companies”). The Plan Companies seek an order pursuant to section 901C of the Companies Act 2006 (the “CA 2006”) convening meetings (the “Plan Meetings”) of certain of their creditors (the “Plan Creditors”) for the purpose of considering and, if thought fit, approving restructuring plans between each of the Plan Companies and their Plan Creditors (the “Plans”).

The Plan Companies are part of the Virgin Active group (the “VA Group”), an international health club operator. A key holding company of the VA Group is Virgin Active Health Club Holdings Ltd (“VAHCHL”). VAHCHL’s ultimate shareholders are Brait Mauritius Limited (72.10%) and Sir Richard Branson (17.85%) (the

“Shareholders”). The remaining 10.05% of the shares are held by the VA Group’s management and an employee benefit trust.

VAHCHL remains fully solvent and was recently valued at between £350 - £400 million on an adjusted enterprise value valuation. It also owns a South African business, which is not part of the planned restructuring as it has separate financing arrangements and is not in financial distress.

The Plan Companies are all incorporated in England and are key entities in the VA

The Group owes significant debts to certain “Secured Creditors” under a “Senior Facilities Agreement” which was entered into on 28 June 2017, with VAHL as the borrower and VAL and VAHCL (among others) as guarantors. There are currently eight facilities under the Senior Facilities Agreement providing financing of over £200 million, all bar one of which are fully drawn. The Senior Facilities Agreement is secured by various guarantees and security over property provided by, among others, the Plan Companies (the “Charged Property”). The Plan Companies have entered into an intercreditor agreement (the “Intercreditor Agreement”) which regulates the enforcement of security over the Charged Property and the ranking and priority of certain claims. Both the Senior Facilities Agreement and the Intercreditor Agreement are governed by English law.

The second significant group of creditors of the Group for present purposes are the landlords under the leases of club premises in the UK (the “Landlords” and the “Leases”). There are a total of 67 Leases included within the Plans relating to 45 properties. Of these, 30 Leases have been entered into by VAL, 32 by VAHCL and 5 are joint leases. Some of the Leases are guaranteed by VAHL, some benefit from guarantees provided by other Group companies, and one is guaranteed by a company

The Plans do not apply to leases of club premises in other jurisdictions. Those clubs are fewer in number, are not predicted to have such large cashflow requirements and the Group has generally been able to reach consensual agreements with the landlords.

The third significant group of creditors of the Group for present purposes are approximately one hundred creditors who are not current Landlords in respect of Leases, but whose claims relate in various ways to properties which are or have in the past been occupied by the Group (the “General Property Creditors”). The debts owed to the General Property Creditors are all unsecured.

Many of the claims of General Property Creditors are contingent liabilities which relate to either authorized guarantees (“AGAs”) or guarantees of authorized guarantees (“GAGAs”) or covenants under privy of contract provided to landlords of properties that were assigned to third parties by the Plan Companies between 2014 and 2019. Such claims would arise if the assignee tenant was to default.

The definition of General Property Creditors also includes creditors with a variety of other types of claims. These creditors include the following,

Trade creditors of VAL number about 158 and are owed a total of about £2.2 million. Those creditors and employees (many of whom are currently furloughed) are considered commercially necessary for the continuation of the Group’s business. It is not proposed that amounts owing to trade creditors, tax or employee related liabilities, or any business rate liabilities are to be affected by the Plans.

I should also record that the Manager filed evidence and appeared by counsel (Mr. McCluskey) at the convening hearing. The Manager contended that in the event that any tenant of the Canary Riverside estate defaulted on payment of any amounts owing to him, he would have a right of indemnity against the other tenants. Mr. Smith QC who appeared for the Plan Companies did not accept that this was so, and I express no view on whether that is right or not. However, the Manager’s contention did raise the issue of whether, if such other tenants were obliged to provide an indemnity to the Manager on account of the default of VAHCL, they might have rights of contribution or indemnity against VAHCL.

At first, Mr. Smith QC contended that any such “ricochet” claims of the other tenants would fall within the definition of General Property Creditors and would thus be compromised by the VAHCL Plan. However, it became apparent that this would potentially involve the tenants of 325 residential units and other commercial units at Canary Riverside, who had been given no notice of the Plans whatever. Mr. Smith QC then took instructions, and told me that the Plans would be amended to exclude such other tenants of Canary Riverside from the definition of General Property Creditors. He added that on the basis that such other tenants would be excluded, the Plan Companies did not intend to give notice of the Plans to them in future.

Whilst reserving his position in light of that indication, Mr. McCluskey told me that the Manager would likely seek directions from the First Tier Tribunal. He also indicated that the Manager might notify the other tenants of the Plans in order that they could consider whether to seek to appear at the sanction hearing in due course.

The revenue of the Group is entirely driven by membership fees and associated income from ancillary services. As such, its financial position has been severely affected by the COVID-19 pandemic. Government-imposed shutdowns around the globe have forced gyms to close in all of the Group’s territories. Membership payments have been suspended during such closures and many members have opted to cancel or suspend their memberships for longer periods.

The underlying EBITDA of the Group fell from positive £56.8 million in the year ending 31 December 2019 to negative £42.1 million in the year ending 31 December 2020 (a fall of 173.7%). The clubs in the UK have been closed throughout 2021, and by the end of February 2021, had been partially or fully closed for nine of the last twelve months. In the same period, its clubs in Italy had been partially or fully closed for eight of the last twelve months. The result for the first two months of 2021 was a

This dramatic drop in revenue caused by the pandemic has put increasing pressure on the Group’s cash flow position. Although the Group took a number of steps to protect its position in 2020, including accessing government support, furloughing over 95% of its UK staff, making reductions to the remuneration and number of remaining employees, and negotiating deferrals or revised payment terms with its creditors, these measures were not sufficient to enable the Group to stabilize its financial position.

In June 2020 further support was provided to the Group by way of an additional £25 million term loan facility under the Senior Facilities Agreement (the “Additional

Notwithstanding such support, the imposition of further coronavirus restrictions forcing the closure of clubs in Italy from October 2020 and in the UK from late December 2020 required a further review of the Group’s finances. In particular, it became apparent that without further funding, the Group would become cashflow insolvent in the week commencing 22 March 2021.

Discussions between the Group and the Shareholders during December 2020 and January 2021 resulted in a proposal for a package of support and compromises to be provided by the Shareholders and the intermediate companies in the VA Group as part of a wider restructuring (the “Restructuring”). The Restructuring includes the Plans in relation to the debts and obligations owed to the Secured Creditors, to the Landlords, and to the General Property Creditors.

The package to be provided by the Shareholders and their affiliates will include (i) the capitalisation of approximately £350 million owing to other members of the VA Group (including £185 million of inter-company liabilities owed to direct or indirect shareholder companies), (ii) the waiver of approximately £9.4 million and the deferral of approximately £15.4 million of liabilities under the licensing arrangements, (iii) the provision of a secured loan of £25 million from VAHCHL which itself borrowed such sum from affiliates of the Shareholders (Brait Capital International Limited and Virgin Holdings Limited) to enable the Plans to be proposed, (iv) the provision of a further loan of £20 million from the affiliates of the Shareholders to provide additional liquidity for the Group after the Plans take effect, (v) an obligation to contribute up to £6 million of equity into the Plan Companies to enable payments to be made to Landlords and General Property Creditors under the Plans, and (vi) the waiver of certain events of default.

The Group approached a number of key Secured Creditors with its proposals for the Restructuring in mid-February 2021. On 10 March 2021 the Group obtained the agreement of just over 80% of the Secured Creditors, who entered into a “Support Agreement” with the affiliates of the Shareholders and the Plan Companies, agreeing to support the Restructuring.

Having obtained such agreement from the Secured Creditors, on 10 March 2021 VAHCHL made the £25 million additional term-loan facility available to VAHL to enable the Group to propose the Plans (the “Pre-Implementation Facility”) using funds made available by affiliates of the Shareholders. Such loan was secured and ranks pari passu with the other debts owed under the Senior Facilities Agreement.

The amount of the Pre-Implementation Facility has not solved the Group’s cashflow difficulties. The most recent 13-week cashflow forecast produced by the Plan Companies shows that without the Plans taking effect, they will again be close to running out of cash at the end of May 2021. The cashflow forecast shows that cash will be £5.5 million in the week commencing 26 April 2021, and will fall to £800,000 by the end of May 2021. This forecast, however, assumes that UK clubs will reopen as expected on 12 April 2021, delivering, at the end of the month, £5.2 million of revenue principally from UK members’ reactivated direct debits. If UK reopening is delayed, cash will fall to £300,000 in the last week of April and will be negative by the following week. The 13-week forecast also assumes that Italian clubs will reopen on 1 May 2021 delivering revenue of £10 million in the week commencing 10 May 2021. If, as appears increasingly likely due to the growth of the pandemic in Italy, Italian reopening is delayed, cash will be negative in the week commencing 10 May 2021 and the Group will have a liquidity shortfall the following week.

On the basis of the figures provided by the Plan Companies, there is a material risk that in the absence of the Restructuring, they will run out of money in the week commencing 17 May 2021. The Plan Companies are therefore proposing the Plans with a view to avoiding entering formal insolvency proceedings, and instead enabling the Group to survive the remainder of the pandemic and rebuild thereafter. The aim of the Plan Companies is that, if approved by the Plan Creditors and sanctioned by the Court, the Plans should become effective on a “Restructuring Effective Date” by the latest during the week commencing 10 May 2021.

The evidence of the Plan Companies is that VAHCHL and its subsidiaries engaged Deloitte to explore the likely alternative scenarios if the Plans were not approved and the Restructuring not implemented. On the basis of that advice, the evidence of the directors of the Plan Companies is that the Restructuring (including the Plans) is the only viable option to rescue the Plan Companies. The evidence of the directors is that if the Plans are not approved and implemented, they would have no choice but to put the Plan Companies into administration.

Deloitte also modelled two scenarios for the administration of the Group. The first

On the basis of the advice from Deloitte, the view of the Plan Companies is that Scenario 1 will achieve a better return for Plan Creditors than Scenario 2, and that it is therefore also the more likely alternative, because the Secured Creditors will have a considerable incentive to finance a trading administration to improve their recoveries.

Deloitte has calculated the estimated returns under Scenario 1 for the different groups of Plan Creditors. For the Secured Creditors, this amounts to 84.6 p/£. For the Landlords and the General Property Creditors, who are unsecured, the estimated return is very poor indeed. The exact number depends upon which Plan Company is the debtor and whether the Plan Creditor also has a claim under a guarantee against one or more of the other Plan Companies or against a solvent company inside or outside the Group. But putting aside the very limited number who have guarantee claims against a solvent company, for the most part the estimated administration return to Landlords and General Property Creditors is measured in fractions of one p/£.

The estimated administration return calculated by Deloitte for Landlords and General Property Creditors (the “Estimated Administration Return”) forms the basis for a central feature of the Plans, namely the “Restructuring Plan Return”. This is simply a sum calculated at 120% of the Estimated Administration Return. The 20% uplift is designed by the Plan Companies to provide the relevant Plan Creditors who are to receive it with a greater return they could expect to receive in respect of their claims in the most “relevant alternative” scenario to the implementation of the Plans. The Plan Companies envisage that this will engage the power of the Court under Section

In broad outline, the treatment of the different groups of Plan Creditors under the Plans is as follows.

The Secured Lenders under the Senior Facilities Agreement will extend the term of their facilities to 30 June 2025 and waive various breaches of covenant, in return for enhanced terms as to interest. The Secured Creditors will not suffer any reduction in the amounts owing to them.

Although the Landlords would all rank pari passu in respect of their claims in the separate administrations of the respective Plan Companies, the Leases have been divided into five classes (A-E) for the purpose of their treatment under the Plans. In essence, Classes A and B are the Leases which are most profitable and which the Group wishes to retain. The clubs operated at the premises covered by the Class A Leases are regarded as the most profitable and critical to the Group’s survival, or as being most attractive to a potential buyer. Class B Leases represent profitable sites but which are less critical to the Group. The claims of the Landlords in respect of

The allocation of Leases to Classes A-E has been done in two stages. First, the Plan Companies conducted an analysis of each leased site’s operating profit for the financial year ending 31 December 2019 (after an allocation for head office costs), rounded to the nearest whole number. The Class A Leases were those sites that achieved an operating margin derived from the operating profit of at least 25 per cent; Class B Lease sites achieved an operating margin derived from the operating profit of between 10 and 25 per cent; Class C Lease sites achieved an operating margin derived from the operating profit of between 0 and 10 per cent; Class D Lease sites were operating at a loss; and Class E Lease sites comprised Leases with Subsidised Subtenants which the Plan Companies consider could not be made financially viable if they were to remain in occupation.

Secondly, the Plan Companies considered whether any particular circumstances justified reclassification of any Lease. The evidence explains that this included situations where the operating profit margin was close to the cut-off point for any class. Five adjustments were made at the second stage, including, for example, where it could be foreseen that a particular club would soon become as profitable as a higher category, or where the Plan Companies were advised that the premises in question were under-rented. In such a case it could be assumed that in an administration a purchaser of the Lease would agree to pay off any arrears in full, such that the Landlord concerned would not achieve a better return if placed in a lower Class under the Plans and its claims for arrears or rent were eliminated.

Under the Plans, all of the Landlords will retain the right to take steps to determine their Lease, whether by forfeiture or otherwise. This reflects the position in relation to a company voluntary arrangement in which it has been held that a landlord cannot be prevented from exercising an accrued right to forfeit the lease on the ground of the tenant’s insolvency: see Discovery (Northampton) Ltd v Debenhams Retail Ltd [2020] BCC 9. Similarly, it has been held that a scheme of arrangement cannot force a landlord to accept a surrender of a lease: see Re Instant Cash Loans Ltd [2019] EWHC 2795 (Ch). The Plans therefore do not provide for the Landlords to suffer any involuntary termination or surrender of any Leases (or indeed any sub-leases).

If, however, a Landlord successfully forfeits or terminates a Lease before the Voting Record Date for the Plans, then the Plans provide that such Landlord will become a General Property Creditor in respect of the liabilities arising. If such action is taken after the Voting Record Date but within 33 months from the Restructuring Effective Date, then the relevant Landlord will be entitled to be paid the Restructuring Plan Return in respect of any court order obtained as a result.

Subject to those provisions in respect of determination of any Lease, in broad outline, the treatment of the Landlords in respect of the different Classes of Lease under the Plans is as follows.

The Lease Guarantees given by the Plan Companies will be directly compromised and varied under the terms of the relevant Plan, in order to align the guarantee with the amended terms of the underlying Lease.

The Plans will compromise the claims of the General Property Creditors against the Plan Companies in return for payment of a Restructuring Plan Return.

One of the Subsidised Sub-Tenants, Pure Gym Limited, appeared by counsel (Mr. Passfield and Mr. Parsons) and drew attention to issues arising for their client on the drafting of the proposed Plans. Mr. Passfield’s main contention was that it was unclear whether it was intended that the Plan should terminate the relevant sub-leases

Where the Plans contemplate that a Plan Creditor will receive a Restructuring Plan Return, there are detailed provisions for submission of claims by a specified bar date between 9 and 33 months after the Restructuring Effective Date. If a relevant Plan Creditor fails to submit a Notice of Claim by the relevant bar date, they will be deemed to have waived and released their right to any Restructuring Plan Return.

Each Notice of Claim will be assessed by Deloitte (as “Plan Administrator”) which may request further information or documentation from the relevant creditor prior to admitting the Notice of Claim in whole or in part and in the event of a dispute, providing the relevant creditor with reasons in writing as soon as reasonably practicable. A Plan Creditor whose claim is disputed may deliver a notice to the Plan Administrator within 21 days. There is then a dispute resolution mechanism involving submission of the dispute to binding determination by an independent accountant acting as expert.

It is intended that the Restructuring Plan Returns will be paid between one and three years after the Restructuring Effective Date. Most of these payments will be paid one year after the Restructuring Effective Date. The timetable is contended by the Plan Companies to be similar to the time that it would be likely to take before any dividend would be paid in an administration, which is anticipated to take between 18 months and two years to be paid out due to the complexity of the Group and the time it would take to complete all asset realisations.

As explained above, the Plans vary the rights of certain Landlords against certain guarantors within the VA Group. This falls within the scope of a compromise or arrangement between the Plan Companies and the Landlords, since the guarantors would otherwise have a “ricochet” claim against the relevant Plan Companies which would defeat the purpose of the Plans: see Re Gategroup Guarantee Ltd [2021] EWHC 304 (Ch) at [163], where the authorities are considered.

Finally, the Plans provide for a release of the professional advisers to the Plan Companies, the directors of the Plan Companies and various other persons involved in the Restructuring from any liability arising out of the negotiation and implementation of the Restructuring. Such a clause is not uncommon and can fall within the concept of a compromise or arrangement between a company and its creditors in their capacity as such: see Re Far East Capital Ltd SA [2017] EWHC 2878 (Ch) at [13]-[14] and Re Noble Group Ltd [2019] BCC 349 (sanction judgment) at [20]-[30].

The procedure for a convening hearing under Part 26 or Part 26A of the CA 2006 is governed by the Practice Statement issued by the Chancellor of the High Court on 26 June 2020 (the “Practice Statement”). The new Practice Statement is similar to the old Practice Statement issued in 2002 (reported at [2002] 1 WLR 1345), and many of the principles outlined in the authorities under the 2002 Practice Statement remain applicable under the new Practice Statement: see Re ColourOz Investment 2 LLC [2020] BCC 926 at [39].

In the present case, the letter to Plan Creditors under the Practice Statement was issued on Wednesday 10 March 2021, immediately after the Support Agreement was signed with the majority of the Secured Creditors and the Pre-Implementation Facility was executed. This was two weeks in advance of the convening hearing.

Prior to that date, the Group’s evidence is that it had focused on reaching agreement with the Secured Creditors as the senior-ranking stakeholders within the finance structure, holding security over the key assets of the Group. There was limited dialogue with some of the Landlords from February 2021, and little or no consultation with the General Property Creditors in advance of the Practice Statement letter being circulated.

Against that background, the Plan Companies accepted that the notice of the convening hearing was unlikely to be regarded as adequate for many Plan Creditors to be ready to advance detailed arguments on issues such as class composition or other relevant topics. I agree.

Given their imminent financial difficulties, the Plan Companies did not wish to see the convening hearing adjourned. They therefore accepted that the Plan Creditors should not be restricted in seeking to raise issues of class composition or jurisdiction at the sanction hearing if they wish to do so, such that the provisions of paragraph 10 of the Practice Statement should not apply to them. Given the apparent urgency of the case, I was content to adopt that course, which has also been followed in other recent cases under Part 26 and 26A where insufficient notice had been given to creditors: see e.g. Port Finance Investment Limited [2021] EWHC 378 (Ch) at [50]-[51].

As Mr. Smith QC acknowledged, the effect is that although I must still make a decision on the evidence and arguments before me in order to make a convening order, those decisions will not bind Plan Creditors, and the Plan Companies essentially proceed to the sanction hearing at their own risk on such issues.

The first jurisdictional issue that I have to decide at the convening hearing is whether the threshold conditions under section 901A of the CA 2006 for proposing a compromise or arrangement are satisfied: see paragraph 6c of the Practice Statement.

So far as material, section 901A provides as follows:

“(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 ...”

The Plan Companies are incorporated in England and each is therefore liable to be wound up in England. Accordingly, each Plan Company is a “company” within section 901A. For the following reasons, I am also of the view that each of the threshold Conditions A and B is satisfied in the present case, and none of the Plan Creditors who appeared at the hearing suggested otherwise.

As I have explained, the evidence shows that the Plan Companies have encountered financial difficulties as a result of the coronavirus pandemic that are affecting and will affect their ability to carry on business as a going concern. It is clear that Condition A is therefore satisfied.

Condition B can be divided into two limbs: (i) the company must be proposing a compromise or arrangement with its creditors or any class of them; and (ii) the purpose of the compromise or arrangement must be to eliminate, reduce or prevent, or mitigate the effect of, any of the company’s financial difficulties under Condition A.

The Plans clearly involve the requisite element of “give and take” to amount to a compromise or arrangement between the Plan Companies and the Plan Creditors. In particular:

As to the second limb of Condition B, there can be no doubt that the purpose of the Plans is to address the financial difficulties which the Plan Companies have encountered due to the pandemic and the resultant trading conditions in the gym and leisure industry.

The next jurisdictional issue is that of class composition at the Plan Meetings: see paragraph 6a of the Practice Statement.

The principles of class composition in relation to a scheme of arrangement under Part 26 of the CA 2006 are well-known. From the legislative background and the fact that both Part 26 and 26A use the same statutory language, it is to be expected that the same principles will generally apply under Part 26A: see e.g. Re Virgin Atlantic Airways [2020] BCC 997 (convening judgment) at [44]-[48], and Re Gategroup Guarantee Ltd [2021] EWHC 304 (Ch) at [181]-[182].

That said, it should be appreciated that a rigid application of the approach under Part

The basic principle that applies under Part 26 is that a class “must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest”: see Sovereign Life Assurance v Dodd [1892] 2 QB 573 at 583 (Bowen LJ) and Re UDL Holdings Ltd [2002] 1 HKC 172 at [27] (Lord Millett NPJ).

As Chadwick LJ said in Re Hawk Insurance Co Ltd [2002] BCC 300 at [30]:

“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.”

It is the legal rights of creditors or members, not their separate commercial or other interests, which determine whether they form a single class or separate classes. Conflicting interests can be taken into account when considering whether, as a matter

It is also clear that the rights of creditors included in a single class can be different in material respects, provided that they are not “so dissimilar as to make it impossible for them to consult together with a view to their common interest”. So, for example, in Re Telewest Communications plc [2004] BCC 342 at 354, David Richards J said that:

“… a broad approach is taken and that the differences may be material, certainly more than de minimis, without leading to separate classes.”

The decision in Hawk demonstrates that the first element of the class analysis in relation to schemes under Part 26 requires the court to identify the substance of the relevant rights possessed by scheme creditors by reference to the counterfactual comparator to the scheme. Accordingly, where a scheme is proposed as an alternative to a formal insolvency procedure, it is necessary to identify the rights that the creditors would have in that formal insolvency proceeding. In the case of a formal insolvency, unsecured creditors would all have rights to participate in a process of proof of debts, whether their claims were present, future or contingent. Hence, as Hawk illustrated, unsecured creditors with present claims and those whose claims are merely contingent may be regarded as having sufficiently similar rights against the company for the purposes of the class analysis.

I consider that the concept of identifying the substance of the rights that creditors would have in the relevant counterfactual comparator is equally relevant to the question of class composition for a restructuring plan under Part 26A. Although Part 26A contains no express requirement upon the court to identify a counterfactual when determining class composition at the convening hearing, a statutory counterfactual has been introduced in relation to one of the conditions that must be satisfied before the court can exercise its (cram-down) power under section 901G to sanction a plan notwithstanding that a dissenting class has not agreed the plan. That statutory counterfactual is called the “relevant alternative” and is defined in section 901G(4) as,

“whatever the Court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned”.

The counterfactual comparator and the relevant alternative are clearly equivalent concepts. In practice there may, however, be a difference between the evidence available to the court when determining the question of class composition at the convening hearing, and when determining the relevant alternative for the purposes of any cram down argument at the sanction hearing. Indeed, as I shall explain, some of the Landlords who appeared at the convening hearing contended strongly that the Plan Companies and Deloitte have not identified the correct relevant alternative.

However, since the question of class composition will remain open to challenge at the sanction hearing, at this stage I shall simply determine the composition of the classes for the Plan Meetings on the basis of the evidence adduced by the Plan Companies. Whilst reserving their rights to contend differently at sanction, the only party who suggested that I should follow a different course to that proposed by the Plan Companies was the Manager who contended that he should be in a class of his own. I shall deal with that argument below.

On behalf of the Plan Companies, Mr. Smith QC submitted that the Plan Creditors should be divided into the following seven classes: (i) the Secured Creditors; (ii) the General Property Creditors; (iii) the Class A Landlords; (iv) the Class B Landlords; (v) the Class C Landlords; (vi) the Class D Landlords; and (vii) the Class E Landlords.

There are three Plan Companies (VAL, VAHCL and VAHL). VAHL is the borrower of the Senior Facilities Agreement, and VAL and VAHCL are guarantors. It is therefore proposed that each Secured Creditor will vote on the Plans for all three Plan Companies.

The General Property Creditors comprise a mixture of liabilities owing by one or more of the Plan Companies. Accordingly, it is proposed that each General Property Creditor will vote on the Plan proposed by each Plan Company which is a debtor of that General Property Creditor.

In relation to the Landlords:

As a result, the Plan Companies propose that there should be a total of 21 Plan Meetings (seven for each Plan Company).

The Secured Creditors are the lenders under the Senior Facilities Agreement. They have the same existing rights against the Plan Companies. Moreover, on the basis of the evidence currently before me, if the Plans do not become effective, then it is likely that each of the Plan Companies will enter into administration. In that case the Secured Creditors would have the same rights. They would all benefit from the same security package (which is shared between them) and would each be entitled to submit proofs of debt for any unsecured shortfall. The Secured Creditors will also have the same rights under the Plans, since the amendments to the Senior Facilities Agreement will affect all of them in the same way. I therefore accept that it is clear that the Secured Creditors should all vote in a single class.

It is also clear that the Secured Creditors should not vote in the same class as the other Plan Creditors. This is because the Secured Creditors are the only creditors that hold security for the liabilities owing to them and the variation of such rights under the Plans by way of amendment and extension of the Senior Facilities Agreement is radically different to the arrangements which will apply to the Landlords and the General Property Creditors.

Although there will naturally be different terms and rentals payable in respect of the individual Leases, the Landlords are all unsecured creditors in respect of their rights to payment of rent and other amounts due under the relevant Lease. All Landlords are also likely to have materially similar contractual rights to forfeit the relevant Lease (e.g. for non-payment of rent or on an insolvency event) and thereby repossess a property currently in the possession of the relevant Plan Company. If the Plans were not approved and the Plan Companies were to go into administration as the relevant counterfactual, in the event of non-payment of rent, the Landlords would each be likely to be given leave to forfeit the relevant Lease and lodge a proof of debt in the relevant administration for a claim calculated in accordance with the decision in Re Park Air Services plc [2000] 2 AC 172.

However, those similarities of the Landlords’ existing rights against the Plan Companies are not reflected in the variation of rights to be effected under the Plans.

Because of such differences in treatment, it is, for example, impossible to see how a Landlord in respect of a Class A or B Lease (which will continue to receive future contractual rents in full) could have a sensible discussion about the merits of the Plan with the landlord in respect of a Class D or E Lease (which will not receive any future payments of contractual rent). And the very different proposals in respect of payment in full or release of rent arrears in return for a Restructuring Plan Return as between

As indicated above, some of the Landlords (including those within the same category) benefit from guarantees provided by various Group companies. The guarantee package for each Lease is different, and there are many different permutations. Although the possession of rights against third parties does not, of itself, give rise to any difference in the Landlords’ existing rights against the Plan Companies for the purposes of class composition, the terms of the Plans under which some Landlords will be required to give up additional guarantee rights of varying value could conceivably operate as a material distinction for class purposes.

However, I do not consider that this is so in the instant case, essentially for two reasons. The first is because where payments of the Restructuring Plan Return are to be made under the Plans, calculated by reference to the Estimated Administration Return, the latter figure is defined to include the estimated return from the estate of each guarantor of the Lease. Essentially the same deal is thus on offer to each class of Landlords; the quantum of the Estimated Administration Return will simply be tailored to reflect the guarantee package in respect of each Lease.

The second reason is one of practicality. To further sub-divide the five proposed Classes depending on the number of different permutations of tenants and guarantors would multiply the number of classes several times. I see no obvious purpose to such a course in circumstances in which the main issue facing most of the Landlords in deciding whether to approve the Plans relates to the overall treatment of their Leases rather than variation of the guarantees.

I therefore accept that it is appropriate for the Landlords to be divided into five classes reflecting the categorisation (A-E) of each Lease under the Plans.

The General Property Creditors are unsecured creditors of the Plan Companies. The liabilities owing to the General Property Creditors relate (in one way or another) to a property occupied (or formerly occupied) by the Group. However, they are not Landlords and their existing rights and treatment under the Plans are very materially different from the rights and treatment of the Landlords. They should therefore not be included in a class with any Landlords.

The liabilities owing to the General Property Creditors arise under a range of contracts and arrangements. Many of the liabilities are guarantees (e.g. AGAs and GAGAs); these liabilities are contingent and may never crystallise. Despite the differences in origin and type of claim, the rights of the General Property Creditors against the Plan Companies in the counterfactual suggested by the Plan Companies are essentially the same. This is because in an administration, the General Property Creditors would all have the same right to submit proofs of debt and to have them valued in respect of their unsecured claims, whether present, future or contingent.

The fact that the General Property Creditors may have claims of different value does not involve a fundamental difference in rights which would make it impossible for

For these reasons, I do not accept the argument advanced by Mr. McCluskey on behalf of the Manager. He contended that since most of the claims of the other General Property Creditors are only contingent, but the claim of the Manager is for accrued arrears, this means that the Manager should be placed into a separate class of his own. As the decision in Hawk showed, however, this is not a material difference in a situation in which the Plans are proposed as an alternative to an administration in which all claims, including contingent claims, would have to be proved and would rank equally for a dividend. It also makes no difference to a class analysis that the Manager might have rights of recoupment against third parties (the other tenants of Canary Riverside) in the event of a shortfall in payment by VAHCL. Those rights are not rights against the Plan Companies and they are not required to be surrendered under the Plans.

In relation to four contracts (the LBH Contract for Services, the Solihull Car Parking Agreement, the Wandsworth Car Parking Agreement and the Canary Riverside Services Arrangement involving the Manager), a slightly different regime will apply under the Plans. The Plans will release any liabilities which were due and payable under these contracts as at the Restructuring Effective Date in consideration for a payment of a Restructuring Plan Return. In addition, if the relevant Lease is terminated by the Landlord before the Final Claims Date, then all other liabilities under the corresponding contract will also be released in return for a Restructuring Plan Return.

This structure ensures that, if the Landlord of the relevant property does not terminate the Lease, then the corresponding services contract does not also need to be terminated. I do not think that this is a sufficiently material difference in treatment to fracture the class of General Property Creditors. The counterparties to the four contracts are actual and contingent creditors, and although potentially relating to liabilities triggered at different times, the same basic deal whereby all such liabilities are released in consideration for payment of a Restructuring Plan Return will be applied to them as to other General Property Creditors with actual or contingent claims.

also indicated that PwC might well wish to disclose the confidential information to potential third party funds and investors as part of the exercise of testing the market to ascertain whether there is a different relevant alternative to that relied on by Deloitte and the Plan Companies.

current plans for the relaxation of lockdown, and the clubs in Italy being unlikely to resume operations due to the recent increase in pandemic restrictions.