July 1, 2021

Restructuring Plans and Bluecrest stays


As set out in our previous blog here, the legislation imposed surrounding commercial landlord’s remedies does not specifically prevent a landlord from issuing a debt claim and taking steps to enforce that by other means.

In the case of Riverside CREM 3 Ltd v Virgin Active Health Clubs Limited [2021] EWHC 746 (Ch) (‘Virgin Active”), a case where the tenant was again defending their landlord’s application for summary judgment, the Judge granted a Bluecrest stay to prevent the landlord enforcing its Judgment obtained.

Background to the case

Virgin Active is a chain of health clubs which make up part of the Virgin Active group of companies, and which have been forced to close for much of the pandemic due to Covid-19 restrictions. During this period, substantial rent arrears accrued, and many of Virgin Active’s leases became unaffordable.

The claimant, one of Virgin Active’s landlords, applied for enforcement measures to recover the debt due and owing.

Virgin Active did not dispute that the money was owed, but successfully requested a Bluecrest stay to hold off enforcement while they enacted a Restructuring Plan with all their creditors.

What is a Bluecrest stay?

The cases of Sea Assets Ltd v PT Garuda Indonesia [2001] 6 WLUK 583 and Bluecrest Mercantile BV v Vietnam Shipbuilding Group [2013] EWHC 1146 (Comm) established that the Court can grant a stay of a creditors action to enable a party to implement a Scheme of Arrangement with its creditors under Part 26 of the Companies Act 2006.

What is a Restructuring Plan?

A Restructuring Plan is a new type of restructuring procedure introduced by the Corporate Insolvency and Governance Act 2020 (the ‘CIGA’). It represents a permanent change to the UK’s restructuring and insolvency regime providing companies who find themselves in financial difficulty with a new tool inserted under Part 26A of the Companies Act 2006.

A Restructuring Plan shares certain features with the Scheme of Arrangement that exists under Part 26 of the Companies Act 2006. Both are arrangements between a company and its creditors aimed at eliminating or mitigating the effects of the company’s financial difficulties. However, the most important difference between the Plan and a Scheme of Arrangement is that it includes what is referred to as a “cross-class cram down”.

This means that, unlike in a Scheme of Arrangement, the Plan needs only to be approved by one class of creditors or members of the class with 75% in value to vote in favour of it in order for it to be sanctioned by the Court. This is the case even if the other classes vote against the Recovery Plan, although the Court must be satisfied that no member of the dissenting classes would be any worse off under the Plan than in the event of the likely alternative were the Recovery Plan not to be approved (usually administration or liquidation).

Why was the stay granted?

Whilst the Bluecrest case was in relation to a Scheme of Arrangement, Virgin Active successfully argued that there was no reason it could not / should not be applied under Part 26A of the Companies Act 2006 as well as Part 26 and this was agreed.

In deciding to grant the stay in the Virgin Active case, the Court considered the amount of work that had gone in to the Restructuring Plan, the likelihood of it going ahead, and the fact that if a stay were not granted it was possible that the creditors would simply create a free-for-all of enforcement actions.

This case, decided by the same Judge as the TFS Stores case, differed in outcome as a result of there being a concrete Restructuring Plan in place that the Court has determined ought not to be interrupted by enforcement actions.

Why does it matter?

This is an important decision as it confirms that where a company is seeking to implement a Restructuring Plan with the intention of avoiding administration or liquidation it should be allowed to do so without one creditor being able to disrupt it and/or gain advantage at the expense of the others.

In circumstances such as Virgin Active’s, a Bluecrest stay can realistically be advantageous to all creditors. The stay does not create a moratorium on enforcement, but allows companies in genuine financial difficulty the opportunity to restructure.

Bluecrest stays could therefore become a very useful tool in the restructuring process to provide further breathing space.

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