Gym chain Fitness First's contentious plan for the restructuring of its estate has been approved at the High Court.
Mr Justice Michael Green has approved the plan via an oral judgment with the written judgment to be provided in due course.
A month ago it emerged that landlords including the Crown Estate, M&G Real Estate and Landsec were planning to combine to challenge the restructuring plan. Sky first reported that the groups are "furious" about the terms of the plan overseen by Fitness First's owner, the family of former sportswear tycoon and Wigan Athletic Football Club owner, Dave Whelan.
The hearing began on Monday 26 June after being postponed for two weeks.
Sources involved in the talks told CoStar News none of the landlords have exposure to large numbers of centres but are concerned that if the process is voted through without challenge it will open the door to other companies using it to "cram down" or shift the financial burden of operating difficulties to landlords, away from private shareholders and secured creditors.
Real estate sources have confirmed to CoStar News that the objections focus on the level of financial information they have been shown, their singling out as a creditor class and the apparent repayment of a loan taken out by Fitness First under one of the government's COVID lending schemes. Sources also said there is confusion as to how Fitness First is presenting its membership numbers and the information available on the usage of clubs, given a member at one club may use the other clubs.
Sky reported Hilton, Legal & General Investment Management and Nuveen are also among the landlords involved in the challenge.
Fitness First is planning to use a "cram down" restructuring plan, a relatively new proposal in real estate, rather than the more familiar company voluntary arrangement. Under the proposals, 10 or just under a quarter, of its 44 UK sites would be closed. Rent cuts would be sought at many of the remaining sites, most of which are in London.
Dominic Curran, assistant director, British Property Federation: “We support the UK’s rescue culture but are concerned that if restructuring plans are abused they can enable businesses to terminate leases and cut rents with little consultation and limited financial disclosure to justify why they are needed.
“Property owners generally have a good relationship with their tenants and reduced or even waived rent during the pandemic to enable businesses to keep trading and protect jobs. Rents have been rebased over the past decade and leases today will reflect current market conditions.
“Restructuring Plans should be a tool of last resort and should only be implemented if there is proper engagement and co-operation with impacted creditors.”
Fitness First's most recently filed accounts show a loss of more than £10 million in the year to 31 March 2021. Teneo Financial Advisory was appointed administrator to Fitness First (Curzons) Limited, a company affiliated to the wider group, earlier this year, and has been contacting landlords.
As with other restructuring plans such as company voluntary arrangements, it is understood that the centres have been batched into different buckets or classes of trading difficulty, with Class B gyms those where Fitness First is seeking the largest rent reductions, while Class C gyms may be subject to 10% reductions. No rent reductions are being sought at some gyms.
In March 2021, some landlords of fitness chain Virgin Active, including British Land and Landsec, hired a leading lawyers as they fought a proposed restructuring that they said would create a new and "dangerous precedent".
The landlords were fighting the first use of the new procedure, now being employed by Fitness First, which they said forced property owners to write off rent debt arrears, reduce future rents and accept other changes to leases that were freely entered into.
The restructuring plan is a court-supervised business rescue procedure introduced by the Corporate Insolvency and Governance Act 2020. The process was backed at the High Court of England and Wales in May 2021.
There have been relatively few uses of it, particularly to force property owners to write off rent debt arrears in the way that the highly contentious company voluntary arrangement process has been used.