Fitness First has filed a Court Order for restructuring at Companies House in the UK – the document is currently being processed, with details due in nine days.

The filing follows a court case which concluded on 29 June, when Mr Justice Michael Green sanctioned a restructuring plan proposed by Fitness First's trading company, Fitness First Clubs Limited, which is a wholly owned subsidiary of Maddox Holdings Limited.

Calling Fitness First a "relatively small, family-owned company with presently 36 open gyms, mainly in London”, Justice Green concluded that the decision to restructure was 'commercially rational' and necessary to 'ensure the future operation of the Fitness First business'. [The company had 43 clubs in May 2023).

Shareholders of Maddox Holdings Ltd were listed as Jayne Best with 75.08 per cent of the ordinary share capital, with the remaining 24.92 per cent held by her father, David Whelan, with 9.89 per cent, her mother, Patricia Whelan, with 5.01 per cent, her husband, Scott Best, with 5.01 per cent and her son, Matthew Sharpe, with 5.01 per cent. Company directors are finance director, Anthony Riley, CEO Scott Best and David Whelan.

Justice Green said “the group is owned and controlled by the Whelan family. It acquired the Company in 2016 through Dave Whelan Sports Limited (DWS) and in September 2019 – as part of a wider reorganisation – DWS sold the Company to Maddox Holdings.

“DWS subsequently entered administration in August 2020, together with certain other [parts] of the Group. This led to the loss of 72 gyms, a very large number of members and the group's entire retail and e-commerce business.”

The two-day hearing saw both the company's finance director, Anthony Riley and financial advisor, Matthew Smith, of Teneo Financial Advisory, give oral evidence, while five landlords contested the restructuring plan.

The point of law used in Fitness First's favour was section 901G of the Companies Act 2006, which gave the court "cross-class cram down power" to impose the plan on the five creditor landlords who had voted against it.

The five opposing landlords were: Lazari Properties 1 Limited, Daejan Investments Limited, the Crown Estate, Vanquish Properties GP Nominee 3 Limited and Vanquish Properties GP Nominee 4 Limited.

Justice Green ruled that these dissenting landlords were no worse off under the plan, as Fitness First had proven it could not survive without it – describing the company as 'unsustainable', given the evidence.

Under the plan, secured creditors will see lease terms extended by 11 months to 2028, a three year interest waiver and a cap on guarantee obligations. HMRC, a secondary preferential creditor will have overdue VAT repaid in full over a five month period.

Landlords have been divided into six different classes by the ruling, with some having no rent reduction and full payment of arrears and others getting no payments in return for the payment of basic ‘restructuring plan returns’ within 12 months. The third category, comprising those who voted against the restructuring, had break rights granted against them.

It’s thought likely that Fitness First will now sell some of the sites which have gained rent-free or favourable rent status, with new operators having a year of grace during which to negotiate new terms with landlords, although they are thought most likely to do this before taking on the liability.

In February 2022, Fitness First MD, Lee Matthews told HCM there was 'real excitement' in the company, and plans to grow through organic openings, but he also explained that cashflow was tight.

During the court hearings, Justice Green confirmed that the company had been struggling for some time and that in August 2022, Deloitte was instructed to market the group for sale with a target completion date of 120 days.

Deloitte reported that it had approached 14 potential purchasers, but no offers were received for the entire group and despite final offers being received from two parties for a small number of specific sites and negotiations taking place up to December 2022, neither of these offers proceeded. “That M&A process was, therefore, unsuccessful,” said Justice Green.

Notes filed in the court show that Fitness First took out £20m of CLBILS loans from Barclays and HSBC, but that it has not been able to service these debts.

The company's evidence stated that it was forecasting it would default on these loans. It also said Fitness First was unable to meet the interest repayments due under those facilities as at 31st December 2022.

In his witness statement Riley said it was clear, as at January 2023, that “without a restructuring of the Company's financial obligations, it would be forced into an immediate insolvency process”.

Arguing against the plan, Robert Amey, for the opposing landlords, said Fitness First’s financial position had been “deliberately and artificially generated by the company and Jayne Best” to leave the court with no option but to sanction the scheme. He said that had the company instead used the money it spent on the court action – said to be around £1.4m – and also utilised a sum of £1.5m that had been made available to the company by Jayne Best but not used, the company could have survived without any form of insolvency.

In answering this query, Justice Green said: “I was at one stage minded to agree that it did look odd that [Fitness First] had embarked on this process [when] it seemingly had enough cash to survive without it, however, the company had realised for some time that it needed to restructure its liabilities in order to do survive. In the interests of its creditors, Jayne Best agreed to put new money into the company in January, but [only] on condition that the restructure goes through.

“That was the way [Fitness First] decided to proceed from January 2023 onwards and in my judgment that was not unreasonable, either for the company or for Ms Best,” he said, “although a legitimate complaint can be made as to the lack of engagement with the landlords by Fitness First and their resistance to the provision of information.

“At the end of the day, I have to look at what’s being proposed and whether it’s fair, taking into account the economic interests in the company and the fact that Parliament has decreed that where creditors are no worse off under a [restructuring] plan than the relevant alternatives, those creditors' opposition to the plan can be overridden,” he continued.

“[Given the evidence] I do not think this position was artificially contrived by Ms Best and the company. Rather, [the directors] decided on a particular course, they have established the necessary conditions for the sanction of such a plan and in my judgment I should exercise my discretion in favour of the scheme.”

Justice Green said that a valuation of the business on the basis of the pre-pack sale from the administration was undertaken by FRP Advisory Trading Limited on 19th April 2023, estimating it to be between £4.5m and £7m at 31st March 2023 – with the company agreeing with these valuations. “This is clearly well below Jayne Best's aggregate indebtedness of approximately £18.7 million, which includes £9.9 million owed by Maddox, but which has been guaranteed by the company,” he said.

In the court case, Justice Green referred to a previous ruling from 2021 on the restructuring of Virgin Active – under which rent liabilities were reduced or waived – as being material to the outcome.

Responding to the judgement, a spokesperson from Fitness First said: “The ruling means we can start moving forward and invest in our clubs while securing the long-term future of the company.

“While many of our clubs are performing well, with hybrid working continuing across the country there are fewer people using some of our city centre facilities and this has had a financial impact on the business.

Fitness First confirmed to HCM in May that it was in restructuring talks.

Values over time

Fitness First was founded by Mike Balfour in 1993. The first location was Bournemouth, UK. The company expanded into Australia in 2000, followed by parts of Europe and was sold to Cinven for £404m in 2003.

In 2005 it was sold on to BC Partners for £835m at a time when its EBITDA was £95m. Further growth followed as the company prepared for an IPO, but borrowings were high and some sites were acquired in the race for growth that were not profitable.

Fitness First UK then went through a CVA in 2012 after a failed IPO and was saved from administration when its landlords approved a deal to reduce their rates by more than 70 per cent. At the time, the company was the UK's biggest gym chain, but shed half its sites and had £600m of debts wiped out.

Under the CVA in 2012 it paid 23p and 28p for every £1 owed, compared with 0.5p if it had fallen into administration.

The company then sold its clubs in Spain, Italy, and Benelux, as well as 24 of its 97 Australian clubs.

It was acquired by Oaktree Capital Management and Marathon Asset Management through a £550m debt-for-equity swap later that year.

The Australian arm of Fitness First was sold in 2016 to the Fitness and Lifestyle Group.

DW Sports Fitness acquired all 62 Fitness First clubs in the UK in 2016 for £70m, selling 14 of those to The Gym Group and continuing to operate 48 under the Fitness First brand. Some were closed and others sold, taking that number to 36 by July 2023.

In 2017, the Fitness First Asia business that was operating in Hong Kong, Indonesia, Malaysia, Philippines, Singapore, and Thailand, merged with Celebrity Fitness to create Evolution Wellness, co-owned by Oaktree and Navis Capital Partners.

In Hong Kong, the Fitness First brand – traded by Evolution Wellness – was liquidated in 2022 due to the stress of the pandemic and impact of civil unrest.

In Germany, the brand is still a successful part of the Life Fit Group.

At its height, the company had around 360 clubs worldwide.