As part of its pandemic-driven £1.2 billion solvent recapitalisation, Virgin Atlantic recently became the first company to use the UK government's new restructuring plan introduced in June 2020.
Let's look at why the court approved Virgin's restructuring plan, and what companies intending to use the new plan need to know before moving forward.
Why did the court approve the plan?
Fairness was a key feature in the court's deliberations to approve the plan; in this context fairness means the plan is one that "an intelligent and honest man could reasonably approve". The court felt this was the case with Virgin's plan, as:
- the plan formed part of a broader recapitalisation approved by a number Virgin's other stakeholders
- an overwhelming majority of creditors voted in favour of the plan, with almost 100% turnout at the meetings, and
- the plan offered creditors four times greater return compared to returns in administration.
Prior to Virgin's plan being approved, a dissenting trade creditor argued that Virgin could have "picked" or manipulated the composition of the classes of creditors in the plan, so that uncooperative creditors could be outvoted.
Nevertheless, the court was satisfied that certain creditors were excluded for "respectable commercial reasons" – ie due to the logistical burden of reviewing contracts with 1,000 excluded trade creditors whose total claim would only amount to 0.02% of Virgin's debt.
Companies seeking to use the new restructuring plan should be aware that they must procure not only the approval of their creditors, but also the sanction of the court, which will necessarily consider fairness in exercising its discretion. Pizza Express is the second company to use the new restructuring plan and it remains to be seen whether a similar approach will be taken.