Last week was a bad week for landlords, with challenges to the restructuring plan proposed by the Virgin Active Group and the company voluntary arrangement ("CVA") implemented by New Look both being unsuccessful in the courts. Whilst the recent revocation by the court of the Regis CVA may provide a glimmer of hope, the general outlook is not optimistic.

With many retailers struggling to cope with the effects of COVID-19 on their revenues, there has been an increase in businesses applying for Company Voluntary Arrangements (CVA). New Look and Virgin Active are two examples of businesses that have chosen this business recovery route, with the aim of cutting rental costs.

It is unfortunately a common story for anyone who has been in business for any length of time: the unscrupulous director who, rather than confront creditors in an insolvency process, simply disappears as if by magic by dissolving the company and re-appearing elsewhere moments later, leaving creditors clasping nothing but smoke. This loophole has frustrated creditors for many years as it means their only remaining option is a commercially unattractive application to restore the company to the register in order to petition to place the company into compulsory liquidation.

The High Court has held that an examination conducted pursuant to an order made under s.236 of the Insolvency Act 1986 (“IA”) did not attract witness immunity. The result was that the joint liquidators were permitted to amend their particulars of claim to plead a claim for breach of duty relating to false statements made in the course of the examination: Mitchell v Al Jaber [2021] EWHC 912 (Ch).

A week is often described as a long time in politics, and so also (it seems) with the restructuring market.

Last week, we saw significant strides forward with:

The restructuring market has been eagerly anticipating the judgments in the New Look and Regis CVA challenges. The New Look judgment was handed down on 10 May 2021 and the Regis Judgment followed on 17 May 2021. This article briefly sets out the issues in the New Look CVA challenge, the decision of Mr Justice Zacaroli and what this means for the future of CVAs.

Overview of the New Look CVA Challenge

The claim brought by the Applicants (a consortium of compromised landlords) can be summarised briefly under three heads of claim:

This case is a reminder to both debtors and nominees that corporate law formalities must be respected and that the insolvency lens may affect the treatment of connected party transactions in future valuations and restructuring processes.

The Regis landlords made multiple complaints regarding the disclosure and valuation of connected party transactions and the large uniform discount applied to multiple landlords for voting purposes (75%). The only argument found in their favour was the mistreatment of one of the intercompany loans.

Key takeaways -

What were the main insolvency and restructuring trends you were seeing pre-pandemic?

What is a pre-pack?

Pre-pack is the term used to describe an arrangement whereby the sale of all or part of a company’s business and/or assets is negotiated and agreed before an insolvency practitioner (IP) is appointed, with the relevant documentation being signed and implemented immediately or shortly after the appointment is made.

Following the demise of receiverships, administration is the insolvency process most commonly used to achieve a pre-pack sale.

Why are pre-packs used?

On 12 May 2021, Mr Justice Snowden sanctioned Virgin Active’s three inter-conditional restructuring plans under Part 26A of the Companies Act 2006. The case has been followed with significant interest in the restructuring community because the restructuring plans included the most extensive cross-class cram down proposal since the introduction of the restructuring plan process last year (DeepOcean and Smile Telecoms are the only other restructuring plans to utilise the cram-down mechanism).