The challenge was heard over two days, was hard fought, and the Court heard oral evidence from the Plan Company’s finance director and financial advisor.
In engaging the jurisdiction in section 901G of the Companies Act 2006, the Judge relied on the cross-class cram down power to impose the plan on five creditor classes who had voted against the plan, all comprising landlords of premises at which Fitness First operates its gyms.
The landlords’ opposition centred on two points: first, the satisfaction of Condition A (the “no worse off test”) under section 901G(3) of the 2006 Act; and secondly, the exercise of the Court’s general discretion to sanction the plan.
As to Condition A, the Judge accepted that the Plan Company had correctly identified the Relevant Alternative for the purposes of deciding whether the dissenting landlords were no worse off under the plan: being a pre-packaged administration sale of the business and assets. The Judge rejected the opposing landlords’ case that the Plan Company had failed to prove that it could not survive outside of a formal insolvency process – describing it as “unsustainable” on the evidence. He concluded that the decision to restructure was a commercially rational one. The Judge also found that recoveries for all Plan Creditors would be either greater or more rapidly obtained (in the case of HMRC) under the plan than in the Relevant Alternative. As such, the no worse off test was satisfied.
As to the exercise of the Court’s discretion, the Judge held that all dissenting creditors were “out of the money” in the Relevant Alternative. As such, little weight was to be attributed to the views of challenging creditors for purposes of the discretion.
The landlords’ objections that the distribution of benefits under the plan was unfair were also rejected: in particular, the Judge concluded that the compromise of Lazari’s ultimately valueless guarantee claim was founded upon legal precedent, and necessary to ensure the future operation of the Fitness First business.
When it came to deciding costs, the Judge declined to award adverse costs against the opposing landlords, but also rejected the applications made by both groups of opposing landlords for payment of the costs of their challenge – concluding that ‘no order as to costs’ was appropriate in light of the nature of both challenges.
Tom Smith KC and Georgina Peters, instructed by DLA Piper LLP (James Davison, Rowan Aspinwall and Ruth Ranton).
Robert Amey, instructed by Hogan Lovells LLP (Matthew Ditchburn).
