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Going down the restructuring route like Virgin is not without hazards Matthew Padian Stevens & Bolton
Virgin Active argued that without the restructuring plan it would fall into administration within days
Likened to a ‘CVA on steroids’, Virgin Active’s approved restructuring plan, devised under the government’s new Part 26A of the Companies’ Act 2006, raises the stakes in the ongoing landlord vs tenant unpaid rent battle. However, concerns around the threat of future restructuring plans should not be overestimated. Deals such as this can only be attempted by companies that have encountered, or are likely to encounter, financial difficulties affecting their ability to carry on business. Admittedly, this is a low bar, but as we emerge from the pandemic, greater attention will be focused on whether companies resorting to restructuring plans such as this are doing so for the right reasons.
PHOTO: SHUTTERSTOCK/SHUANG LI
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Issue 5 2021 ©Cybertrek 2021
While Virgin Active’s plan could encourage others to follow suit, the number of restructures to deploy Part 26A to date remains low. Launching such a plan is a heavily court-focused process – unlike a CVA – making it expensive and time-consuming, so this route is better suited to larger companies with secured creditors. Going down the restructuring route is also not without hazards. For example, companies considering a Virgin Active-style approach must be rigorous in avoiding any suggestion of procedural impropriety or that the voting classes have been incorrectly constituted. They also need to consider entering administration or seeking a freestanding moratorium to get a hold on creditor action while plans make their way through the courts. Landlords entering into new leases may want to ensure forfeiture clauses come into effect in the event that tenants propose restructures and also that rent concessions fall away if restructuring plans are launched. l Under the new Part 26A of the Companies Act 2006, High Court Judge Richard Snowden has given Virgin Active the green light to erase millions in rent arrears it had accrued during pandemic lockdowns. The company’s landlords argued there were other options available, such as selling the company. More: www.HCMmag.com/rent
