Virgin Active Holdings Ltd & Ors, Re (Part 26A of the Companies Act 2006)

Factual and Procedural Background

The judgment concerns three companies seeking court approval of restructuring plans under Part 26A of the Companies Act 2006. The court had previously issued a judgment convening class meetings of creditors for these companies. Following that judgment, the court heard submissions on the issue of costs incurred at the convening hearing, particularly whether the plan companies should pay the costs of certain creditor groups who appeared and made observations or objections regarding the plans.

The plan companies had agreed to pay the costs of two parties who made limited contributions at the convening hearing. However, two other creditor groups sought payment of substantially higher costs, which the plan companies disputed, arguing that payment of such costs was not a matter of principle and that the issue should be deferred until after the sanction hearing.

Legal Issues Presented

1. Whether there is an established principle or practice that plan companies must pay the costs of opposing creditors who appear at scheme hearings under Part 26 or Part 26A of the Companies Act 2006.
2. What principles should guide the court's discretion in awarding costs in relation to creditor opposition at convening and sanction hearings for restructuring plans under Part 26A.
3. Whether the court should decide on costs at the convening hearing stage or defer the decision until after the sanction hearing.

Arguments of the Parties

Appellants' Arguments (AHG and Riverside)

• The court's long-standing practice is to order the successful applicant to pay the costs of creditors if their arguments, even if ultimately unsuccessful, were of assistance to the court.
• Part 26 schemes are not adversarial litigation; thus, normal costs rules under CPR 44 do not apply.
• Under Part 26A plans, the court may sanction a plan despite creditor opposition ("cram down"), so dissenting creditors should not bear their own costs of such proceedings.
• On the facts, the plan companies engaged inadequately with the creditors, imposed an abbreviated timetable, and delayed disclosure, justifying the creditors’ preparation and attendance at the convening hearing.
• The creditors raised substantive concerns, obtained additional confidential information, and intend to oppose the plans at sanction, justifying an order for costs now.
• Riverside, unlike one creditor group, had not yet decided whether to oppose at sanction, supporting immediate payment of costs.

Respondent's Arguments (Plan Companies)

• There is no established practice that opposing creditors are automatically entitled to costs regardless of outcome; costs remain a matter of judicial discretion.
• Automatic cost orders in favour of opposing creditors would undermine the utility of Part 26A plans, especially where opposition comes from dissenting creditors who stand to receive more under the plan than in the alternative.
• The court should defer the costs decision until after the sanction hearing, when the role and assistance of opposing creditors will be clearer.
• There was no inappropriate lack of engagement by the plan companies with the opposing creditors.
• The opposing creditors failed to establish deficiencies sufficient to prevent convening the meetings, or to obtain material timetable extensions.
• Additional information obtained by the creditors was limited and primarily relevant to sanction stage arguments; costs related to obtaining it should be considered at sanction.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reviewing the authorities on costs in Part 26 scheme proceedings, noting a consistent theme that costs orders are discretionary and that the general rule of costs following the event does not automatically apply. It acknowledged that the nature of scheme proceedings differs from adversarial litigation, given the court's role in sanctioning arrangements that may bind dissenting creditors.

The court rejected the argument that there is a fixed principle requiring plan companies to pay the costs of opposing creditors, even if their objections are unsuccessful but helpful. Instead, the court emphasized a flexible, case-by-case exercise of discretion, informed by factors such as whether objections were genuine, whether they assisted the court, and whether ordering costs would encourage or discourage proper scrutiny of the scheme.

The court also considered the factual context of the instant case, noting the hybrid nature of the convening hearing and that some issues remained open for determination at the sanction hearing. The court observed that the additional information obtained by the opposing creditors might be relevant to arguments at sanction, making it premature to decide costs now.

Balancing these considerations, the court concluded it was appropriate to defer the decision on costs for the larger creditor groups until after the sanction hearing, where the full context of their involvement and assistance to the court would be clearer. The court distinguished the smaller creditor groups whose more limited costs had been paid separately.

Holding and Implications

The court RESERVED the question of costs claimed by the larger creditor groups (AHG and Riverside) in relation to the convening hearing until after the sanction hearing. If either creditor group chooses not to participate actively at sanction, they may renew their application for costs thereafter.

This decision leaves the costs discretion open and confirms that there is no automatic entitlement for opposing creditors to have their costs paid by the plan companies. The ruling emphasizes the importance of a fact-sensitive, case-by-case approach and does not establish a new principle or precedent that would alter the established discretionary framework for costs in scheme and restructuring plan proceedings.