Pizza Express Gets Court OK To Take Restructuring To Vote

By Paige Long
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Law360, London (September 30, 2020, 5:35 PM BST) -- A judge granted Pizza Express permission on Wednesday to take a planned restructuring to creditors for approval, after the restaurant chain said it is facing a liquidity crisis because of the COVID-19 pandemic.

Judge Alastair Norris said the pandemic and the subsequent lockdown measures that have been put in place in the U.K. "threaten to devastate whole sections of the casual dining sector, which was already facing a challenging environment."

The judge said he was satisfied Pizza Express Financing 2 Ltd. should convene three separate meetings with its creditors and shareholders to vote on the plan. If they approve, the plan will then be reviewed for a sanctions hearing set for the end of October.

The restructuring is part of a wider refinancing that the group company, which has nearly 12,000 employees, has drawn up to reduce its indebtedness by about £1 billion ($1.29 billion).

"The group has been seriously affected by the COVID-19 pandemic, which has caused unprecedented disruption for the casual dining sector," said David Allison QC, counsel for the chain.

He told the judge that while Pizza Express has been able to reopen 346 of the 450 restaurants in the U.K. that were forced to close in March, it still faces "serious financial difficulties" and projections show that its cash flow will fall to zero by Nov. 9 unless the restructuring takes place.

He said the pandemic has put the company "on the brink of administration."

The High Court hearing, which was held remotely, comes after creditors approved a company voluntary arrangement, or CVA, on Sept. 4. That plan related to Pizza Express (Restaurants) Ltd.'s property portfolio and leasehold obligations across the U.K., and once implemented will involve the closing down of "unviable" restaurants, according to court documents.

Pizza Express required court permission to conduct three creditor meetings to vote on the proposed restructuring, which will affect senior secured notes worth about £465 million, senior unsecured notes worth about £200 million, and the shares in Pizza Express Financing.

The company applied to the court under the new Part 26A of the Company Act, which is aimed at helping businesses that need to restructure their debts due to the impact of COVID-19. It enables creditors to be grouped together so they can vote in a single class.

The judge has to identify commonalities such as the same legal rights or that they would suffer similar disadvantages if the restructuring is not sanctioned.

It is only the second time the court has considered a case under the new legislation, after Virgin Atlantic relied on it for its own restructuring last month.

Pizza Express hopes to convene the meetings remotely on Oct. 21, so that the restructuring plan can take effect from Oct. 30, Allison told the judge. The company has already missed interest payments due under the existing notes, according to court documents.

"This is truly urgent," Allison said. "One needs a conclusion to the process by Nov. 9 so that one does not hit a cash flow of zero."

Felicity Toube QC, counsel for a group of creditors who own about 80% of the senior secured notes, said at Wednesday's hearing that her clients "entirely support" the plan and propose to vote in favor of it.

In return for discharging their existing notes, the creditors will receive a series of new senior secured notes issued by a new special purpose vehicle as well as shares in the restructured group.

The partial debt-for-debt swap and debt-for-equity swap should give them better returns than they would have received if the company entered administration, Toube said.

According to the filings, Pizza Express will also need to apply for recognition of the restructuring plan under Chapter 15 of the U.S. Bankruptcy Code, because the existing notes are governed by New York law.

Pizza Express is represented by David Allison QC and Ryan Perkins of South Square, instructed by Kirkland & Ellis LLP.

The creditors are represented by Felicity Toube QC of South Square, instructed by Latham & Watkins LLP.

The case is In the Matter of Pizza Express Financing 2 Ltd., case number CR-2020-003816, in the Insolvency and Companies List, Chancery Division of the High Court of Justice of England and Wales.

--Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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