On 12 May 2021, in the first opposed cross-class cram down case, the English High Court sanctioned Virgin Active's restructuring plans, the first to bind landlords to lease compromises. 

The decision

While the opposing landlords challenged the valuation evidence advanced by the companies, they did not advance evidence of their own. The court accepted the companies' evidence that: 

• the most likely alternative outcome to the plans was an administration followed by an accelerated sale
• none of the members of any of the dissenting classes would be any "worse off" under the plans than in the alternative scenario, and 
• the dissenting classes would be "out of the money" and would receive nothing in an administration accelerated sale.

The opposing landlords contended that the court should nonetheless refuse to sanction the plans as it was unfair that the companies' shareholders would be entitled to retain their equity. They also contended that they should be entitled to benefit from any "restructuring surplus". 

The court disagreed, ruling that since the shareholders were providing new money in return for their equity, it was permissible for secured lenders (as the "in the money" creditors) to determine how the restructuring surplus was allocated. The landlords – as "out of the money" creditors – therefore had no right to complain.

Key takeaways 

• The arguments of "out of the money" creditors will be given very little weight in considering whether to sanction a restructuring plan. 
• Valuation evidence is key in determining the 'no worse off' test in the cross-class cram down.
• While the recent New Look judgment will allay concerns over the use of CVAs, the Virgin Active case demonstrates that a restructuring plan can, through one process, achieve a similar outcome regarding landlord compromises and effect an operational and financial restructuring with multiple creditors (secured and unsecured).

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.