Fitness First has been saved from administration after landlords approved a deal to reduce their rents by more than 70%, reports the Guardian today.
The country's biggest gym chain will also shed nearly half its sites and have about £600m of its debts wiped out.
Could this set a precedent that sees fewer retailers slip into administration?
It’s reported that Fitness First has agreed to a company voluntary arrangement (CVA) through KPMG, which will allow it to pay between 23p and 28p for every £1 it owes, compared with 0.5p if it were to fall into administration (nice to see the humble ha'penny making a comeback - we'll all be paid in farthings soon...mark my words...).
CVAs have been used before by struggling companies, but only to negotiate rents on empty sites.
The deal struck by Fitness First might mean struggling retailers could impose rent reductions on all landlords in future, rather than having to negotiate with landlords individually.
Barry Gross of law firm Berwin Leighton Paisner (who also blogs as UK Legal Eagle) said:
"This is good news for the high street and gives more options to retailers to help them avoid administration. The biggest issue facing the retail market generally is that rents are high and in difficult trading conditions there is nothing they can do because it is a fixed cost. But if more retailers use these kind of CVAs, which is likely after its success at Fitness First, it should avoid future administrations – which are far more costly."
The Fitness First deal will see it selling off 67 of its UK gyms.
A further 79 gyms will get rent reductions and in return some of the biggest landlords will receive a stake in the business.
Some landlords will no doubt feel aggrieved, whatever the pragmatism of the overall deal.
If any of them want to do so, they have 28 days to appeal against the decision.
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