MAG Financial and Investment Ventures Pty Ltd v El-Saafin [2022] VSCA 286

The Victorian Court of Appeal has recently held that credit provided under the National Credit Code (“the NCC”) to purchase, renovate or improve residential property for investment purposes is restricted to the immediate use of the debtor.

A strata wind-up is an excellent way to realize the economic potential of a multi-unit residential property (the "strata") by leveraging the value of each unit in the strata as a whole to a developer that may want to re-develop on the strata's property. This article summarizes the onset and development of this emerging sector in light of recent case law and current events.

Introduction to strata wind-ups

As with many retail businesses, the Nero Group has been seriously impacted by the Covid-19 pandemic.

The company is the tenant of 619 stores and in November 2020 the directors proposed a Company Voluntary Arrangement, which is a statutory compromise voted on by creditors. The CVA proposal was principally focused on the company’s landlords, seeking to compromise the terms of the leases as to arrears of rent, future rent, service charges and insurance.

The creditors voted in favour of the CVA in December 2020.

The COVID-19 pandemic shook the global real estate and hospitality industry as lockdowns were put in place across the globe. The sudden and unexpected lack of footfall caused revenues in physical centers such as restaurants, shopping malls and hotels to plummet, compounding existing structural inefficiencies and accelerating the speed of change for many businesses.

A recent judgment finds a Personal Insolvency Arrangement (the PIA) is not permissible where the term of the restructured loan is likely to exceed the lifespan of the debtor.

The key facts

The PIA in question involved a mortgage term extension of 372 months (ie 31 years) which would have required the Debtor to continue making repayments until she was 98 years of age which is well beyond the Central Bank's recommended age of 70 years of age.

Not only was 4 May Star Wars Day this year, it was also the day The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (referred to in this article as the ‘debt respite regulations’) came into force.

In brief

Earlier this month, judgments were handed down in the landlord challenges to two Company Voluntary Arrangements ("CVAs"), New Look and Regis. The challenge to the New Look CVA was unsuccessful, although permission to appeal to the Court of Appeal has been given. Whilst the Regis challenge lead to the revocation of the CVA, the majority of the landlords' arguments failed. These judgments provide important guidance on the use of landlord CVAs and their terms.

On 12 May 2021, in the first opposed cross-class cram down case, the English High Court sanctioned Virgin Active's restructuring plans, the first to bind landlords to lease compromises.

The decision

While the opposing landlords challenged the valuation evidence advanced by the companies, they did not advance evidence of their own. The court accepted the companies' evidence that:

On 17 May 2021, in the third of a trio of landlord challenge cases, the English High Court revoked Regis UK Limited's company voluntary arrangement (CVA) on one ground of unfair prejudice, but ruled against landlords seeking repayment of fees against the nominees.

The facts