Landlords of New Look stores have failed in their challenge to a CVA which wrote off rent arrears and imposed turnover rents on hundreds of stores.
Like so many high street fashion retailers New Look was already in a precarious position before the pandemic hit. When its turnover was reduced to nil overnight it projected it would run out of cash without help.
Virgin Active Case - The Verdict
The High Court in London yesterday ruled in favour of Virgin Active's controversial restructuring plan. This is the second example of the court exercising its discretion to sanction a contested plan which sought to rely on the so called cross-class cram down; and the first to affect landlords.
The case, heard by Mr Justice Snowden (who has received praise for his balanced approach throughout the court process) sets the precedent for plans being used to bind landlords that vote against them.
The recent Accountant in Bankruptcy v Peter A Davies case examines how a family home is dealt with following sequestration of an individual. The sheriff's comments about the case suggest there could be room for improvement in the Bankruptcy (Scotland) Act 1985, to make the process clearer for everyone involved.
Case background
An important judgment by Snowden J yesterday, sanctioning Virgin Active's restructuring plans after a contested sanction hearing, which included a cram down of several landlord classes that did not approve the plans by the requisite majorities in those classes.
The decision is important as among the many points covered, it considers certain key issues including:
Few things go together as naturally as fraud and insolvency. The pattern is now well rehearsed: scams pile up unnoticed while money flows in the good times, but when recession hits, increased scrutiny from lenders, counterparties and the tax man – not to mention insolvency practitioners – means fraud is far more likely to be discovered.
Christopher Buckingham acted for the Secretary of State in Re Javazzi Limited (in liquidation) [2021] EWHC 1239 (Ch).
The decision confirms that company voluntary arrangements remain a flexible tool for restructuring leasehold portfolios.
• No rigid test exists for “basic fairness” that requires a landlord to receive at least market rent, or that contractual rent should be interfered with to the minimum extent necessary.
• If a landlord is entitled to terminate the lease and receive a better outcome than in the alternative, any automatic unfairness from changes to the terms of the lease is negated.
• Whether a CVA is unfairly prejudicial depends on all the circumstances of the case.
There has been much debate in recent years around the use made of certain UK restructuring tools – the company voluntary arrangement and, more recently, the new restructuring plan – to restructure commercial property leases. Commercial tenants argue that compromise is necessary to address high fixed costs that are no longer sustainable, but landlords have often been critical of the approach taken. This debate has become more acute in the context of the pandemic, as many High Street businesses subject to mandatory closure have built up significant rent arrears that need to be addressed.
On Monday, the High Court handed down its decision in (1) Lazari Properties 2 Limited, (2) The Trafford Centre Limited, (3) LS Bracknell Limited and 10 Others and (4) Fort Kinnaird Nominee Limited and 20 Others v (1) New Look Retailers Limited, (2) Daniel Francis Butters and (3) Robert Scott Fishman [2021] EWHC 1209 (Ch) considering the various grounds of challenge raised by the applicants in relation to the New Look CVA. Mr Justice Zacaroli rejected each of the grounds of challenge leaving the New Look CVA intact.
The Part 26A Restructuring Plans (the "Plans") proposed by each of Virgin Active Holdings, Virgin Active Limited and Virgin Active Health Clubs Limited (the "Plan Companies") have been sanctioned by the court. This decision has been eagerly anticipated by the restructuring and insolvency market, struggling tenants and the beleaguered landlord community.