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Allen & Overy advises the Virgin Active group on its landmark restructuring

Allen & Overy has advised the Virgin Active group on its landmark financial and leasehold estate restructuring, which represents the first time a leasehold estate has been restructured using a Part 26A restructuring plan.

Virgin Active is a leading international health club operator and was, prior to the Covid-19 pandemic, a successful business delivering strong financial performance. However, like many businesses, it has been significantly and adversely affected by the ongoing Covid-19 pandemic, with government-imposed shutdowns resulting in a dramatic drop in revenue and a build-up of rental arrears.  

In January 2021, Allen & Overy was engaged to help deliver a solvent restructuring solution for the Virgin Active group in order to restructure the claims of the Europe & APAC group’s secured and unsecured creditors. The restructuring was implemented through three separate but inter-conditional restructuring plans under Part 26A of the Companies Act 2006, along with various other consensual compromises involving the shareholders, the Virgin brand licensor and certain other creditors.

A leasehold estate restructuring would typically be implemented using a company voluntary arrangement (commonly referred to as a CVA), or a pre-pack administration. However, this restructuring is the first of its kind to restructure a leasehold estate by way of a Part 26A restructuring plan, thereby allowing a single restructuring process to successfully compromise landlord claims, secured creditor claims and various other unsecured property related liabilities. By utilising the Part 26A cross-class cram down provisions, which allow the court to sanction a plan if it is satisfied that dissenting creditors would be no worse off under the plan than they would be in the most likely outcome should the plan fail (referred to as the ‘relevant alternative’), Virgin Active has been able to successfully implement a solvent restructuring that would not have been possible under either a CVA or a scheme of arrangement. 

The restructuring was unsuccessfully challenged by an ad hoc group of landlords.

Partner Earl Griffith, who led on the matter, commented: “Successfully using a Part 26A restructuring plan to achieve a solvent solution to the financial difficulties facing Virgin Active is an excellent result for the group’s members, employees, creditors and other stakeholders. It is also another market-leading first for Allen & Overy. This restructuring is a landmark moment and demonstrates the flexibility of the new restructuring plan tool to achieve a successful resolution of the financial difficulties facing many businesses as a result of the Covid-19 pandemic. We fully expect the Virgin Active restructuring and Part 26A process will pave the way for many other economically viable businesses to follow suit and seek to maximise their chances of survival on a going concern basis.” 

As well as Earl Griffith, the core Allen & Overy restructuring team comprised Hannah Valintine, Jasmine Norris, Philip Wells and Mark Pugh.  The restructuring team worked closely with Allen & Overy’s litigation team led by Susanna Charlwood together with Oli Rule, Edward Levy, Nick Barnhard and Nick Wright (PeerPoint), banking team led by Jon Bevan together with Graham Knight, Danielle Hyde and Megan Chen-Schlote, and corporate team led by Claire Coppel and Jim Ford, together with Arthur Jebb, Zara SproulPoppy Kevelighan and George Luther. 

Deloitte were financial adviser to the Virgin Active group on this landmark Part 26A restructuring plan and prepared the Relevant Alternative Report. The Deloitte team included Henry Nicholson, Matt Smith, Matt Mawhinney, Callum Fyfe, Simon Hanks, Stuart Morris and Rohan Chacko.

Travers Smith also advised Virgin Active group on certain aspects of the Restructuring.