Virgin Active wins approval for controversial restructuring it says will save jobs

Gym chain Virgin Active has welcomed court approval for a controversial restructuring plan that the company says will provide certainty for thousands of jobs.

Sky News revealed last week that if the shake-up was blocked, it was feared the business could fall into administration within days.

But it faced opposition from landlords, who say the plan “sets a dangerous precedent” by allowing wealthy backers to extract value in good times but claim insolvency when times are tough.

The gyms group, which is 18% owned by Sir Richard Branson, has had its finances placed under strain as a result of the pandemic.

In a statement the company said: “Virgin Active is pleased that the court has supported its view that the restructuring plan represents a fair solution to the impact of the COVID-19 crisis which has resulted in our clubs being closed for most of the last year.

“It will provide certainty for thousands of jobs and ensure a stronger balance sheet to underpin our operations in Europe and the Asia Pacific region.”

But the High Court’s decision was criticised by the British Property Federation (BPF), the commercial real estate trade association.

BPF chief executive Melanie Leech said: “This restructuring plan sets a dangerous precedent.

“The law is now allowing wealthy individuals and private equity backers to extract value from their businesses in good times but later claim insolvency, as simply a means to get out of their contractual obligations with property owners.

“This is fundamentally inequitable and the government should not allow it to continue.”

The shake-up will mean property owners are forced to write off millions of pounds in rent arrears and face future reductions.

It will also see shareholders inject £45m of cash as well as deferring roughly £17m of royalty fees – money that is paid to a separate company controlled by Sir Richard to licence the Virgin brand.

A collapse of the chain would have threatened more than 2,000 UK jobs.

Matthew Bucknall, chief executive of Virgin Active, said: “Today’s judgment approving the restructuring plan allows the business to reset for the long-term benefit of all, after having to close our doors for most of the last year due to the pandemic.”

Brait, Virgin Active’s majority shareholder, had signalled that it would not inject more capital into the business unless the restructuring is approved.

But landlords including Aberdeen Standard Investments and British Land argued that they would be left shouldering a disproportionate part of the financial pain from the Virgin Active deal.

Virgin Active’s plans follow a glut of controversial company voluntary arrangements in recent years, which have been used by retailers such as Arcadia Group, Debenhams and New Look.

It has been seeking to implement its refinancing under Part 26A of the Companies Act, meaning that a creditor group such as its landlords faces being “crammed down” – or forced to accept the terms even if they vote against the scheme.

Launched in Britain in 1999, the group now has 236 clubs in eight countries, including Australia, Botswana, Italy and South Africa.

At the end of 2019, it had more than one million members worldwide.

The pandemic’s impact has been severe, however, resulting in revenues halving last year and an underlying loss of £42m.

Virgin Active also saw 100,000 members leave during the year.

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