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Virgin Active

They think they’d look to the middle of any proposed scenario as a starting point and work from there but real life with all its caveats, complications and considerations means that solutions are rarely as simple and equitable as 50/50.

Two recent legal cases involving Virgin Active and New Look have illustrated what a difficult concept “fairness” is - especially if you're a corporate landlord. 

Virgin Active operated a chain of national health clubs which suffered a dramatic loss of income when they were closed as a result of the Covid-19 pandemic and subsequent year of lockdowns

They decided that the only way the business had a viable future would be if it was able to restructure its debt commitments. 

This was objected to by various landlords who own properties rented by Virgin Active and the company subsequently failed to secure the necessary 75% majority from its creditors so a court was asked to rule on the plans. 

Under new legislation created in the Corporate Insolvency and Governance Act 2020, a court can agree to a company’s proposals if none of the dissenting creditors would be financially worse off than if the business entered administration or ultimately liquidation. 

Another condition to be met is if the restructuring plan has been approved by a creditor who has a genuine economic interest in the relevant alternative. 

What is a restructuring plan? A restructuring plan is an arrangement between a company and its creditors resulting in a reduction or restructure of any outstanding debts and liabilities. A court must agree to sanction it for it to become binding on all parties.

While similar to the already well-established “scheme of arrangement” process, a new power known as “cross class cram down” allows the court to override the objections of certain creditors and bind them all to the agreement if the court sees it as the most viable way forward for the business. 

Previously, certain creditors could hold up or vote down a procedure if they were unhappy with their probable returns regardless of whether it meant the business had a chance of surviving or not. 

In a relatively new precedent, a judge agreed to sanction Virgin Active’s restructuring plan which legally allows companies to reduce owed rent debts to landlords and other creditors instead of entering a CVA agreement which would entail all creditors potentially losing more. 

The judge found that under the proposals, the return to all creditors was higher than they would receive under an alternative insolvency procedure so agreed to implement the “cross class cram down” mechanism, reducing their rental obligations. 

What is a CVA? A Company Voluntary Arrangement or CVA is an agreement between a company and its creditors to pay a set, monthly fee for a period of times, usually five years, that will go to creditors in return for a proportion of existing debt being written off and the business being allowed to continue trading and not being threatened with winding up and liquidation. 

The other pertinent case was brought against clothes retailer New Look by landlords challenging its Company Voluntary Arrangement (CVA). 

New Look entered into a CVA in September 2020 as a result of severe trading difficulties caused by the coronavirus pandemic. This was the company’ second CVA in recent years, the first being launched in 2018, but the subsequent crisis necessitated a new agreement. 

Various landlords who owned properties leased by New Look challenged the arrangement on the grounds that they would suffer unfair prejudice and that there were other material irregularities within the procedure. 

They argued that the CVA would be unfair to them because some creditors would be treated preferentially and their votes were the ones used to pass the agreement in the first place. 

They also argued that moving to a turnover based rent system after the CVA had concluded; the imposition of a three-year rent concession period and the release of “keep-open” covenants, allowing New Look to close certain unprofitable stores, all unfairly impacted them.

The court rejected these arguments saying that differential treatment of creditors does not make a CVA materially unfair but depended on the unique circumstances of each case.

The judge found that as creditors would likely receive a better financial outcome under the CVA than any alternative, it would pass a fairness test.  

Chris Horner, Insolvency Director with Business Rescue Expert, said: “While the restructuring plans regime is being tested in court, we can already see how useful and flexible it can be.

“While both recent cases involved large businesses covering several locations, it proves that they can be part of a holistic solution for otherwise viable organisations looking to restructure their liabilities and find a path back to profitability, no matter what size they are. 

“Some individual landlords might be annoyed at having to take a financial hit but a thriving tenant will be able to provide more reliable returns than counting on the proceeds of asset sales in a liquidation. 

“CVAs, administrations and now restructuring plans give insolvency practitioners a range of viable and flexible tools to help businesses survive and rebuild on stronger foundations.

“The pertinent question creditors need to ask themselves is “what’s the alternative?”

“If more companies consider a restructuring plan as an alternative to a CVA, depending on their circumstance, it will generally mean that the costs of debt restructuring are shared across all creditors which, as well as being “fairer”, should mean more business recoveries. 

“A restructuring plan increases the chances that a financially distressed firm will be able to restructure and bounce back within one procedure rather than looking to renegotiate or relaunch subsequent CVA’s.

“If the past 12 months have taught us anything, it’s that we should all look beyond our own circumstances and see if we can do more to help wider society.

“Fairer outcomes for creditors and recovering or restructuring companies would be a good start”.

While the country gets back to trading with less restrictions, it will be some time before we see if certain changes of behaviour enabled by the pandemic and response are here to stay or a temporary solution. 

New laws and rule changes are part of this. They might prove universally popular and useful and enjoy widespread adoption, or collectively they might be seen to have outlived their usefulness and a better solution found to tomorrow’s problems. 

Directors and business owners need to be more focussed on what happens to today, and this is where we can help. 

We offer a free, initial consultation where we can discuss what obstacles your company faces right now and come up with some realistic solutions on overcoming them. 

There might be some ideas that you haven’t considered but the sooner you decide to take action, the more options you’ll generally have to act on. 

Click the link above, pick a time that’s convenient for you and we’ll do our very best to help your business get back on its feet. 

We can’t say fairer than that. 


Photo by Reece Horton

The Chancellor Rishi Sunak delivered a spending review which will have ramifications for their businesses in terms of support and tax liabilities. 
The arrangements for Christmas will be announced by the four UK nations governments along with finding out the new Covid-19 tier status of every local authority in the country which will let some businesses know if they can open at all. 
Others will find out what they can sell with various restrictions and one of the busiest shopping days of the year - Black Friday - is hours away. 
With so much happening, it’s easy to miss some of the biggest insolvency and administration stories that happened this month but we’re happy to bring you up to speed.   
Edinburgh Woolen Mill Group
Four of the UK’s top high street names owned by the same group all entered administration within a tumultuous two week period this month. 
Edinburgh Woolen Mill and Ponden Home closed their physical retail stores on November 6 with the immediate loss of 860 positions. They are owned by the Edinburgh Woolen Mill Group is ultimately controlled by entrepreneur Phillip Day. 
Less than two weeks later, two of the groups other central brands - Jaeger and Peacocks - also entered administration putting a total of 6000 jobs in jeopardy while administrators work to restructure and eventually sell the business to prospective buyers. 
A spokesperson said: “Recent months have proven extremely challenging for many retailers, even those that were trading well before the pandemic, including the teams at EWM and Ponden Home. 
“Regrettably, the impact of Covid-19 on the brands’ core customer base and tighter restrictions on trading mean that the current structure of the businesses is unsustainable and has resulted in redundancies.
They continued: “In recent weeks we’ve had constructive discussions with a number of potential buyers for Peacocks and Jaeger but the continuing deterioration of the retail sector due to the impact of the pandemic and second lockdown have made this process longer and more complex than we would have hoped.”
They confirmed that a “standstill agreement” had been secured with the HIgh Court that had temporarily put off administration but had expired. 
“Therefore as directors we have taken the desperately difficult decision to place Peacocks and Jaeger into administration while those talks continue.”
Wheatsheaf Shopping Centre
It’s not just shops that are closing at the Wheatsheaf Shopping Centre in Rochdale, the whole centre is closing next month for good. 
In recent years it has lost big anchor tenants including Argos, New Look, Wilko’s, Rymans, Brighthouse and Select but the news is still devastating to the remaining stallholders. 
Charles Denby of MCR Property Group who manage the centre said: “The ongoing coronavirus pandemic has expedited the migration from traditional shopping habits and the impacts on the retail sector have been significant. 
“Since reopening after lockdown in June 2020, footfall has been tracking at an average of 45% down year-on-year and this lockdown will impact these figures further. The financial viability of the centre is not sustainable.”
He continued: “Nationwide we continue to see a large number of retailers experiencing serious trading difficulties, and more are resorting to insolvency procedures to cut their rent bills. 
“When the change in shopping habits collides with reduced income, an excess of space and cost structures that are simply no longer realistic, landlords have to take action.” 
A silk company which had been trading in Suffolk for nearly 250 years has gone into administration with the loss of 32 jobs. 
Vanners was founded in 1740 and moved to Suffolk in the late 18th Century when the county became the hub of the British silk weaving industry. 
Still designing and manufacturing silk fabrics and products for the fashion and furnishing sectors, Vanners provided silk for Her Majesty Queen Elizabeth II’s coronation gown as well as more recently the singer Adele and former US First Lady Michelle Obama. 
A spokesperson said: “Vanners had been experiencing difficult trading conditions for some time, which was exacerbated by the severe impact of Covid-19 on the fashion sector. We intend to fulfil outstanding orders while we seek a buyer for the business.” 
The city-centre based Revolution Bars has entered a CVA which will see six of its sites close immediately. 
While they anticipate that the group's cash flow will improve over the two-year period of the arrangement, they said that the long-term impact of Covid-19 including a one-off £1.1 million cost, meant that they must consider all necessary options to ensure the business can remain viable. 
Chief Executive Rob Pitcher said: “I’m grateful for the support of our creditors in approving the CVA which is a positive step in the right direction for the business.”
He also said that while he welcomed government support, the hospitality sector had been severely affected by it’s “often illogical, inappropriate and disproportionate response to the pandemic. 
“To plan ahead, we still require guidance on how the sector can ultimately exit the current restrictions in a safe and timely manner.”
Abercrombie and Fitch
American bellwether fashion retailer Abercrombie and Fitch announced that it will be closing its flagship London store as part of an “ongoing global store network optimization initiative” that aims to reposition the brand from larger format, tourist-dependent flagship locations to smaller store that cater to local customers. 
This cuts the number of “flagship” locations from 15 to 8 by the end of January 2021. CEO Fran Horowitz said: “As we approach the peak holiday selling period, inventories remain well-controlled and we have thoughtful plans in place to help us adapt to changing business conditions. 
“As we have done since the start of the pandemic, we will utilize our proven playbooks to remain agile and provide the best omnichannel experience for our customers.”
Although it might be argued that the pandemic has rendered most retailers playbooks obsolete which is why so many are having to change their strategies and look for insolvency advice to survive.
One thing that can be guaranteed in this most inexplicable, unexpected year is that things will be busier in the remaining month of 2020. 
Some companies will be made by the decision taken in the next couple of weeks but sadly some will also be broken if they cannot function normally because of local or national restrictions. 
It can be hard to remain focused when there is so much happening but if you’re running a business and you feel like you’re running out of time and places to turn - there is a route available for you - and it always will be. 
We’ll arrange a free initial consultation with you when it’s convenient to discuss what your company is up against. 
Once you get in touch we can give you our professional assessment on your available options including some ideas you might not have thought of yourself. 
Time is critical right now so the sooner you get in touch, the quicker you can then act to protect and preserve your business but only if you act while you can.  Some options are time limited and with an uncertain festive period ahead, these days and weeks ahead might be the difference between how you welcome in 2021. 

An equal amount of coverage and adulation has been given to the tireless NHS workers and GP’s who’ve stepped up to face a once-in-a generation challenge with the same selfless professionalism and dedication to duty they’re renowned for. 
But there’s one branch of the health services that experienced a very different year and that’s dentists. 
From a public health point of view since March there have been collectively 19 million fewer dental treatments in England alone compared to 2019. 
Research from the British Dental Association (BDA) warn that not only are practices operating at a fraction of their capacity during the pandemic, limited to emergency treatment in many cases, but that hundreds of practices could be forced to close within the next year without extra financial support. 
During September and October 2020, dental practices were operating at a third of last year’s level. 
The BDA conducted interviews with 1,337 dental practitioners and more than half said they would not be financially viable a year from now unless they were given extra support. 
The oral health implications are also stark with a combination of dentists closing and less patients being seen. 
Sam Shah, group clinical director for East Village Dental, a group of six practices in the south of England said: “At least two of my surgeries, both in deprived communities with high levels of need, are at risk of closing within the next 12 months if the government doesn’t intervene.
“These communities have a lack of access to any other NHS dental services. We’ve seen an increase in the number of people using painkillers to manage dental pain - and that’s led to an increase in the number of people presenting at A&E after inadvertently overdosing on paracetamol or ibuprofen.”
Dentist insolvency matters
Sadly because of the ongoing uncertainty around restrictions on dental reopening for non-emergency services, several are facing severe financial difficulties and should be considering options to help alleviate these. 
Moving quickly to get professional advice and then choosing to pursue a CVA or administration could be the best solution for a dental practice that is hoping to reopen but has no clear pathway to welcoming customers back into the surgery. 
There was initially some confusion around whether insolvency could affect a dentist’s professional registration or even their future ability to hold NHS treatment contracts. 
Fortunately the answer is no, it won’t.
Insolvency proceedings do not affect a dentist's registration with the General Dental Council (GDC) or their membership of the British Dental Association (BDA) in any way. 
Most dentists work with a mix of private and NHS patients so there’s no reason why dentists working through formal insolvency proceedings can’t carry on private dentistry work. 
If they enter a CVA, administration or CIGA restructuring there’s no requirement for dentists to inform customers. They do have to notify the NHS if they hold treatment contracts and enter any formal insolvency proceedings but there’s no obligation on the NHS to terminate contracts in these circumstances.
It’s a testament to the care and professionalism the profession is noted for that they consider their future standing so carefully and we’re happy to set any of their worries aside.
If you’re a dentist then the thing you’d probably like more than anything else this year is some certainty about your future. 
When will you be able to see non-emergency patients again? What restrictions will remain if you can? Will it be governed by which area of the country I like in when tiered lockdowns return again?
Good advice can bring certainty of purpose and action too. 
Get in touch with us today and we’ll arrange a free initial consultation which can be held virtually at a time convenient to you. 
We’ll discuss the circumstances of you and your practice and be able to summarise what your immediate options are and what action you can take now while waiting for bigger decisions to be made. 
This could be the first step toward a brighter future so when you can begin practice again, you could already have made some changes to protect your business and livelihood in the meantime.

two paths
The three most important additions introduced were:-

We’ve talked about the insolvency moratorium at length elsewhere but it’s a positive development that can only help companies by giving them breathing space to restructure their businesses while legally protected from creditor actions. 
Ipso Facto clauses used to allow suppliers to terminate contracts for goods and services if the company underwent an insolvency event but this orders them to keep the supply going which will give the company a better chance of trading their way back to profitability. 
The restructuring plan procedure, which some learned writers are referring to as the “super-scheme”, should be better known than it already is because it’s going to have a big impact in 2021 and beyond.
It gives professional insolvency practitioners additional tools to help protect businesses looking to restructure but with one important new power modelled on the American style “Chapter 11” bankruptcy process.
Whilst an insolvency practitioner does not take an active appointment on the matter, assistance from such professionals, like those at business rescue expert, is key in having these arrangements approved.
It runs parallel to the existing Scheme of Arrangement process, where a court can oversee corporate restructuring efforts without the business having to enter insolvency or be sold as a result. 
Whilst, like a CVA, 75% of creditors in value are required to approve the restructuring plan, if the threshold is not met, dissenting creditors can be legally bound to accept the restructuring plan by the court if it’s found to be fair and equitable to do so. The downside to this however, due to the costs of going to court, is the process is significantly more expensive to implement than a CVA.
If it can be proven that none of the creditors would be any worse off if the plan didn’t go ahead and that the plan is indeed realistic. By worse off, this is often compared to the alternative, which is often the outcome in liquidation or administration, meaning there is a wide discretion for the plan to be approved, but again the involvement of an insolvency practitioner is likely to be needed to make such a certification.
The CIGA Restructuring Plan Application Process
A CIGA restructuring plan can be applied for with or without the use of the new insolvency moratorium
The plan will generally take time to fully implement so the moratorium can provide the necessary breathing space to allow the restructuring plan to be considered. 
Because court hearings are required as well as a creditors meeting, the plan could easily take two to three months to implement, compared to the average of four to six weeks that a CVA would take.
How it works

Crown Preference = CIGA > CVA ?
There's another important calculation that businesses considering restructuring need to take into account - the return of Crown Preference.
We’ve previously written about how HMRC’s newly restored priority in the hierarchy of creditors will cause unintended effects throughout the economy. 
Practically this means that some companies that would previously have been looking at a CVA to restructure their business and readjust course will now have to enter administration or even liquidation in order to satisfy this new aggressive creditor at the expense of others who might have been prepared to back a CVA and would see little return, if any from an insolvency.
As a result of the return of crown preference, HMRC will mop up the first dividends issued under a CVA. With HMRC as an unsecured creditor, all creditors may stand to receive 60p/£ from the arrangement, where with the return of crown preference, HMRC may receive 100p/£, with the remaining unsecured creditors only then receiving 10p/£ after HMRC have been paid in full.
Where this may be too much for creditors to accept under a CVA, if it is realistically the best outcome, the alternative being liquidation, the CIGA restructuring plan would still bind creditors to accept the arrangement, even if they oppose it en-mass.
The good news is that you’ve got a professional friend in your corner at exactly the time you need them. 
Business Rescue Expert provides a free initial consultation for any business to discuss what problems they’re facing right now and how they fix them in the short, medium and long term. 
Get in touch with us to arrange one and we can outline all the options available to make sure that no matter how rough 2020 was, you can begin 2021 with hope.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association


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