These are just a few of the big high street names which have sought to compromise their obligations to creditors in recent months via a company voluntary arrangement (CVA).

CVAs are designed as a flexible method by which companies can seek to contractually alter their position regarding different creditors – each CVA will be different, but it is typical, for example, for unsecured trade creditors to be treated differently to landlords. It’s worth noting that secured creditors are not bound by a CVA, unless they agree to this.

In May 2018, Mothercare and Carluccio's became the latest in an increasingly long line of high street names to propose Company Voluntary Arrangements (CVAs) involving significant site closures and rent reductions. On 31 May, 91% of unsecured creditors approved the Carluccio's CVA, and the following day Mothercare's creditors followed suit (although that was not the case with all of its subsidiaries, as discussed below). Next in line according to recent reports are House of Fraser and then Homebase, following the latter's acquisition for £1 by retail restructuring specialists Hilco.

'I can't be responsible for every single thing that goes on at Sports Direct. I can't be. I can't be!'

Mike Ashley founder and Executive Deputy Chairman Sports Direct appearing before the Business Innovation and Skills Select Committee (June 2016)

Obtaining Decree

After obtaining a Decree (or judgment in England) there are a number of steps that can be taken, if the debtor does not make payment, to recover the outstanding debt. In Scotland this process is known as “diligence”.

Charge for payment (“Charge”)

Lord Bannatyne has issued his opinion in respect the Note of The Provisional/Interim Liquidator of Equal Exchange Trading Limited [2018] CSOH 35 which gives guidance in respect of the role of the court reporter when fixing the remuneration of a liquidator. The full opinion can be viewed here.

Background

In LRH Services Ltd (in Liquidation) v Raymond Arthur Trew (1) Jason Marcus Brewer (2) and Derek O'Neill (3) [2018] EWHC 600 (Ch), LRH Services Ltd (LRH), acting by its liquidators, brought claims for breach of duty against three former directors. The claims arose from a reorganisation in 2009. LRH did not trade but had two trading subsidiaries (R and E) and it was wholly owned by CSGH, which also had another subsidiary in addition to LRH, CSG. Two of the directors of LRH were substantial shareholders in CSGH.

The reorganisation

Toone v Robbins 2018 [EWHC] 569 (Ch)

The lessons to takeaway

Directors who are also shareholders need to be careful when arranging how to take payments from a company. For tax reasons, dividends can be perceived to be an attractive way to take cash out of a company, but if there are insufficient distributable reserves, such payments are unlawful and can be clawed back.

A new wave of CVAs?

A company voluntary arrangement (CVA) is, provided the voting thresholds are met, a binding agreement made between a company and its creditors, designed to compromise a company’s obligations to its creditors.

As retailers and restaurateurs across the UK continue to show signs of financial distress, interest in the use of CVAs has increased. A common facet of a CVA is a focus on reducing rents and offloading unprofitable leases.

Compromised or full rent?

Following recent media reports, with effect from Monday 15 January 2018 the Official Receiver has been appointed liquidator of a number of Carillion Group companies (Carillion Plc, Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited). The Official Receiver will be supported by a number of Special Managers from PwC.

The High Court gives an insolvency exclusion a wide scope and declines to apply narrow interpretation rules for exclusions in insurance contracts in Crowden and another -v- QBE Insurance (Europe) Ltd [2017] EWHC 2597 (Comm).