Revolution Bars Limited, Re
[2024] EWHC 2949 (Ch)
In the matter of Fitness First Clubs Limited
29 June 2023
[2023] EWHC 1699 (Ch)
High Court
Fitness First was struggling financially. They proposed a plan to pay less rent to landlords to stay afloat. Some landlords disagreed. The judge looked at what would happen if the plan failed (the company would likely go bankrupt). Because the plan was better for the landlords than bankruptcy, the judge approved it, even though some landlords were unhappy.
Key Facts
- •Fitness First Clubs Limited (the "Company") applied for court sanction of a Restructuring Plan under Part 26A of the Companies Act 2006.
- •The Plan aimed to restructure liabilities, primarily by reducing rent payable to Landlords.
- •Five out of nine creditor classes (all Landlords) did not vote in favor of the Plan.
- •The Company is a relatively small family-owned company with 36 gyms, mainly in London.
- •The Company's financial difficulties stemmed from the COVID-19 pandemic and subsequent changes in consumer habits.
- •The Company's shareholder, Ms. Jayne Alison Best, is the only Secured Creditor and is unwilling to continue funding unless the Plan is sanctioned.
- •The Plan involves a cross-class cram down, impacting Landlords significantly.
- •The opposing Landlords argued that they were not "out of the money" and that the Company had not adequately engaged with them.
- •The Company's parent company, Maddox Holdings Limited, guaranteed some lease obligations but is not included in the Plan.
Legal Principles
Court sanction of a restructuring plan under Part 26A of the Companies Act 2006, even if a class of creditors dissents.
Companies Act 2006, sections 901F and 901G
"No worse off" test: Dissenting creditors must not be worse off under the plan than in the relevant alternative.
Companies Act 2006, section 901G(3)
Relevant alternative: The court determines the most likely outcome if the plan is not sanctioned.
Companies Act 2006, section 901G(4)
Four principles for scheme sanction (also applicable to plans): Compliance with statutory requirements; fair representation; reasonable approval; absence of defects.
KCA Deutag UK Finance PLC [2020] EWHC 2977 (Ch)
Creditors' views carry little or no weight if they are "out of the money" in the relevant alternative.
Re Virgin Active Holdings Limited [2021] EWHC 1246 (Ch)
It is permissible to exclude creditors whose ongoing supply of goods or services are critical to the business's future.
Re Virgin Active at [261] and Re Houst Limited [2022] BCC 1143
Jurisdiction exists for a plan to vary rights of creditors against guarantors.
Re Lehman Brothers International [2010] BLR 489
Outcomes
The court sanctioned the Restructuring Plan.
Conditions A and B of section 901G were met; the relevant alternative was deemed to be administration with a pre-pack sale; dissenting creditors were considered "out of the money"; and the court exercised its discretion.
The court found the relevant alternative to be administration with an accelerated M&A process.
Based on evidence presented by the Company and the lack of credible alternatives.
The court found that the dissenting Landlords were "out of the money" in the relevant alternative.
Their claims would likely receive minimal return in administration.
No order for costs was made.
While the objections were not frivolous and assisted the court, the core arguments of the objecting Landlords ultimately failed, and there was a lack of reasonableness from the Company in responding to information requests.