Gym chain Virgin Active has hailed court approval for a controversial restructuring plan that the company says will bring certainty to thousands of jobs.
Sky News revealed last week that if the reshuffle was stalled, there was concern that the company would fall under administration within days.
But it has faced opposition from homeowners, who say the plan “sets a dangerous precedent” by allowing wealthy lenders to extract value in good times, but to claim insolvency when times are tough.
The gym group, which is 18% owned by Sir Richard Branson, has seen its finances strained due to the pandemic.
In a statement, the company said: “Virgin Active is pleased that the court has upheld its view that the restructuring plan represents a fair solution to the impact of the COVID-19[female[feminine crisis that caused our clubs to shut down for most of the last year.
“It will bring certainty to thousands of jobs and ensure a stronger balance sheet to support our operations in Europe and the Asia-Pacific region.”
But the High Court’s decision has been criticized by the British Property Federation (BPF), the association of commercial real estate professionals.
BPF Managing Director Melanie Leech said: “This restructuring plan sets a dangerous precedent.
“The law now allows high net worth individuals and private lenders to extract value from their business at the right times, but to claim insolvency later, as a simple means of evading their contractual obligations with owners.
“It is fundamentally unfair and the government should not allow this to continue.”
The upheaval will mean landlords will be forced to write off millions of pounds in rent arrears and face future reductions.
It will also see shareholders inject £ 45million in cash and defer around £ 17million in royalties – money that is paid to a separate company controlled by Sir Richard to license the Virgin brand.
A collapse of the chain would have threatened more than 2,000 jobs in the United Kingdom.
Matthew Bucknall, Managing Director of Virgin Active, said: “Today’s judgment approving the restructuring plan allows the company to reset for the long-term benefit of all, having had to close our doors during the most of last year because of the pandemic. “
Brait, the majority shareholder of Virgin Active, had indicated that he would not inject more capital into the company unless the restructuring was approved.
But the owners, including Aberdeen Standard Investments and British Land, have argued that they should shoulder a disproportionate share of the financial pain of Operation Virgin Active.
Virgin Active’s plans follow a glut of controversial voluntary deals from the company in recent years, which have been used by retailers such as Arcadia Group, Debenhams and New Look.
He has sought to implement his refinancing under Part 26A of the Companies Act, which means that a group of creditors like its owners risks being “crowded” – or forced to agree to the terms even. if they vote against the plan.
Launched in Great 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 a million members around the world.
The impact of the pandemic has been severe, however, resulting in a halving of revenues last year and an underlying loss of £ 42million.
Virgin Active also saw 100,000 members leave during the year.