Virgin Active Cram-Down: Too Many Innuendos, Going For a Lie Down ...

Posted on Mar 09, 2021. by NTI

When the owners of Virgin Active were considering the options as to how to do-over their landlords, they must have considered a 'cram-down', if only for its innuendo and comedic potential. Deloitte's restructuring arm had been advising Virgin Active long before it became Teneo, scoping its talks with landlords who are variously 'appalled' and 'disappointed', because that is what landlords are these days. The advisers have now extended their brief to encompass a restructuring plan under Part 26A of the Companies Act 2006, which is getting everyone in our glorious profession terribly excited, as it is still a new toy and we want to see how others play with it before we get a go. 

For their part, the gym chain's lenders are being advised by Alvarez & Marsal, so we can expect this to get very fruity as the story unfolds. The short of it is that under the proposal, a creditor group such as Virgin Active's landlords faces being 'crammed down', meaning they could be forced to accept the terms of a restructuring arrangement even if they vote against the plans. As if landlords hadn't been beaten by enough differently shaped sticks in the past 15 months or more.

We could set you some homework, or just summarise a little of what Part 26A tells us. We'll choose the latter; Part 26A applies where a compromise or arrangement is proposed between creditors or members or any part of them to eliminate, reduce or prevent, or mitigate the effect of, any of the financial difficulties. The court can order a meeting of creditors (or class of them) as it thinks fit and if a minimum of 75 percent of creditors (or members) vote in favour of the arrangement the court may sanction it. The arrangement is then binding on all the company's creditors as well as the company itself (including a Liquidator, if it is being wound up). The 'crammed down' part of the addition to the 2006 Act states that none of the members of a dissenting class (ie those who cannot block the 75 per cent or greater vote in favour) must be any worse off than they would be in the event of the relevant alternative. 

If the restructuring plan is launched this week, as is supposed to happen, it will be the first time it has been used against landlords, forcing them to accept what they have not and would not ever vote for. Another arrow added to the quiver of tenants and, to use an accompanying metaphor, another nail in their coffin.

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