Virgin Active’s Court Win a Blow to U.K. Landlords Chasing Rent

(Bloomberg) -- A judge in London ruled that gym chain Virgin Active can wipe out the rent arrears on most of its venues and avoid future steep payments, despite the opposition of a majority of its creditors.

The decision represents a victory for tenants and a blow for landlords, with other companies now likely to seek a reduction in their debt pile using the same tool. Rent arrears have been building since March last year when non-essential businesses were forced to close or operate with restrictions due to the pandemic.

During the hearings, the company owned by Brait SE and billionaire Richard Branson argued that without the plan it would go into administration; a worse outcome for most classes of creditors.

In response, the landlords -- Aberdeen Standard Investments, British Land Plc, Land Securities Group Plc and a fund managed by Knight Frank Investment Management -- said that the company could have tried other options, such as selling the business or some assets, to tackle the situation.

Judge Richard Snowden ruled that with the restructuring plan “no member of a dissenting class will be any worse off than they would be in the relevant alternative.”

New Rules

Virgin Active is the first company to use insolvency rules approved last year which force landlords to accept losses even when fewer than three-quarters of the firm’s creditors agree. U.K. car park operator NCP is now seeking relief for its rental costs under the same criteria.

The gym group’s rent bill is set to reach 30 million pounds ($42 million) by the end of May, according to court documents.

Prior to the pandemic, the U.K.’s standard restructuring tool to deal with unsecured creditors like landlords consisted of a company voluntary arrangement, which requires approval by 75% of relevant creditors.

Under the so-called “cross-class cramdown” rule, companies just need one class of creditors to support the restructuring, but still require court approval for their plans.

A government-imposed moratorium on forfeiture action, preventing landlords from taking control of the asset if the tenant fails to pay, has been in place for more than a year and is set to be lifted in June.

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