In what is likely to be the most significant change to the UK restructuring and insolvency market since the Enterprise Act 2002, the Court has paved the way for restructuring plans (RPs) under Part 26A to the Companies Act 2006 to be used to compromise the rights of landlords, financial creditors and other unsecured creditors provided the company shows that those creditors are "out of the money".
RPs were introduced as part of the package of emergency measures introduced in light of the Covid-19 pandemic in the Corporate Insolvency and Governance Act 2020. The Act introduced RPs in a new Part 26A to the Companies Act 2006. The main feature of an RP is that it allows "cross-class cram down", which enables a company to bind dissenting classes of creditors under an RP, provided at least one class approves the RP by at least 75% by value of those present and voting. This is in contrast to a scheme of arrangement under Part 26 of the Companies Act which must be approved by each class of creditors. Virgin Active proposed RPs with its creditors and, in the decision sanctioning the RPs (Re Virgin Active Holdings Limited [2021] EHWC 1246), the Court has for the first time addressed how it will approach sanctioning an RP when a substantial number of classes of creditors have voted overwhelmingly against the proposal.
This is a wide-ranging decision that is likely to be relevant to leasehold restructurings and, given the reasoning can be applied to very different fact patterns, financial restructurings and particularly debates between senior financial creditors, junior financial creditors and equity. The judgement emphasises the very broad scope of RPs and is likely to make them a feature of the restructuring market going forward – creating very different dynamics for stakeholders. It may also place significant reliance on valuation evidence as to those creditors likely to receive a distribution in an insolvency (who are therefore "in the money").
The decision is discussed in more detail in this briefing published by our restructuring and insolvency team.
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