Virgin Active Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 01 April 2021 |
| Neutral Citation | [2021] EWHC 814 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2021-000548, 549 and 550 |
| Date | 01 April 2021 |
In the Matters of
[2021] EWHC 814 (Ch)
Mr Justice Snowden
Case No: CR-2021-000548, 549 and 550
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Rolls Building
Fetter Lane
London, EC4A 1NL
Tom Smith QC, Ryan Perkins and Lottie Pyper (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
Approved Judgment
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
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 Group's Europe & Asia Pacific business sub-group (the “Group”). Virgin Active Investment Holdings Limited (“VAIHL”) is the ultimate parent company of the Group. VAHL is a wholly-owned subsidiary of VAIHL and VAL and VAHCL are wholly-owned subsidiaries of VAHL. There are currently a total of 102 clubs in the Group's business located in the UK, Italy, Australia, Thailand and Singapore.
The Plan Creditors
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 outside the Group. The arrears of unpaid rent owed to the Landlords in respect of the Leases will amount to about £30 million by the end of May 2021. Such amounts are all unsecured.
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,
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.
Excluded creditors
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 Group's financial difficulties and the proposed Restructuring
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...
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