Collapsed retailer British Home Stores cannot challenge its own company voluntary arrangement as an unenforceable contractual penalty and must repay rental discounts to its landlords, the High Court in England and Wales decided yesterday.

The case, in which Hogan Lovells represented the successful landlord, provides important guidance on the operation of company voluntary arrangements (CVAs), particularly after termination, and the payment of rent as an expense of a company’s administration in priority to other debts.

CVAs

The recent spate of high-profile company voluntary arrangements (CVAs), including those of BHS, Store 21 and more recently Love Coffee, The Food Retailer Group and Blue Inc, has placed this corporate rescue tool back in the spotlight.

CVAs can be a useful mechanism for turning around a failing business, but it is clear that they are no panacea. First, they don’t always work, and BHS is a striking example of a CVA failing to save a business despite compromising a large number of leasehold liabilities.

The High Court yesterday held that a Chairperson of a shareholder scheme meeting may reject votes cast against a scheme of arrangement in circumstances where the shares were acquired through an artificial share-splitting exercise designed to frustrate the scheme. It is the first English case to consider this issue and while it arose in the context of a shareholder scheme, the impact is also significant for debt restructurings implemented by way of a creditor scheme of arrangement.

Background

In Re Fivestar Properties Ltd, the High Court has decided that a dissolved company which is subsequently restored to the register could have its freehold property re-vested in it, even though the property had passed to the Crown bona vacantia and the Crown had subsequently disclaimed it.