Corporate Debt Restructuring through a Company Voluntary Agreement
In the current economic climate most businesses will experience temporary or longer term cash flow pressure resulting in stressful trading and creditor pressure.
The High Court has struck down a company voluntary arrangement on the ground that it unfairly prejudiced a landlord who was to lose the benefit of a guarantee given by the tenant’s parent company. The judge said it was “unreasonable and unfair in principle” to require the landlord to give up the guarantee and there was “no sufficient justification” for requiring the landlord to accept a sum of money in lieu.
What follows are some of the issues that need to be considered when a contractor, like Rok, goes into administration.
Building services and maintenance contractor Rok was placed into administration this week. Administrators from PWC are looking for a buyer for the self styled “nation’s local builder”. The move comes just weeks after the administration of its rival Connaught which led to 1,400 redundancies. Rok’s 3,800 employees will be understandably very concerned as will Rok’s customers/employers, many of whom are in the public sector.
Commercial sellers need to be particularly careful when purporting to sell property with vacant possession. In a recent case, Area Estates Limited v Weir (2010), Area Estates tried to sell a site to Weir, telling Weir that Area’s former tenant had surrendered its lease, so that Area could sell with vacant possession.
In January we posted on the impact of a case that ruled that landlords are able to claim rent as an expense of the administration when a tenant’s administrators are in occupation of all or part of a leasehold property.
In the continuing uncertainty of the current economic climate, and with a tough financial regime introduced by the new government, landlords may still find themselves faced with an insolvent tenant.
Introduction
Case considering whether rent which accrued during an administration was payable in full as an expense of the administration or whether payment was a matter of discretion for the court.
The past eighteen months have seen a marked increase in the use of the Company Voluntary Arrangement (“CVA”) by retailers to reduce their lease liabilities and win the release of onerous parent company guarantees, with several high street names going through the process. Although this practice received cautious support from landlords, real concern continues to be voiced over the practice of “guarantee stripping”.
In our e-update of 20 January 2010, we looked at a decision of the English courts from December 2009 in which it was decided that, in England, the Administrators of a tenant company are bound to account to the landlord of premises for rent due in relation to the period during which those premises are being used in connection with the administration, and that the rent is to be paid as an expense of the administration.