As part of its pandemic-driven £1.2 billion solvent recapitalisation, Virgin Atlantic became the first company to use the UK government's new restructuring plan introduced in June 2020. It was followed closely by Pizza Express at the end of October.

The beginning of 2021 saw the court sanctioning the first cross-class cram down in the Deep Ocean restructuring. The approval of Swiss airline caterer gategroup's restructuring about the applicability of the Lugano Convention to restructuring plans followed in February 2021.

Why did the court approve the Virgin Atlantic plan?

Fairness was a key feature in the court's deliberations to approve the plan. In this context, fairness means the plan is one that "an intelligent and honest man could reasonably approve".

The court felt this was the case with Virgin's plan, as:

• the plan formed part of a broader recapitalisation approved by a number of Virgin's other stakeholders
• an overwhelming majority of creditors voted in favour of the plan, with almost 100% turnout at the meetings, and
• the plan offered creditors four times greater return compared to returns in administration.

Prior to Virgin's plan being approved, a dissenting trade creditor argued that Virgin could have "picked" or manipulated the composition of the classes of creditors in the plan, so that uncooperative creditors could be outvoted.

Nevertheless, the court was satisfied that certain creditors were excluded for "respectable commercial reasons" – eg due to the logistical burden of reviewing contracts with 1,000 excluded trade creditors whose total claim would only amount to 0.02% of Virgin's debt. 

Key takeaway

Companies seeking to use the new restructuring plan should be aware that they must procure not only the approval of their creditors, but also the sanction of the court, which will necessarily consider fairness in exercising its discretion. 

Find out more

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