Categories
Cash Flow & Forecasting Insolvency Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

High Court CVA clarification for landlords

High Court ruling for landlords on CVARecently in the High Court landlords challenged the validity of the CVA (Company Voluntary Arrangement) that was approved for the High Street Debenhams retail chain.
The store chain had announced that its restructuring plan based on the closure of 50 stores and rent reductions for up to 100 others.
Major shareholder Mike Ashley, owner of Sports Direct, had sought to challenge the CVA after the board of Debenhams rejected his offer to buy the chain for £200 million. His shareholding was wiped out when the company went private as part of the rescue and restructuring deal, which was approved by 80% of its landlords.
Although Ashley withdrew his own challenge to the CVA, he continued by backing a legal challenge from Combined Property Control Group (CPC) as landlords who owned several properties.
According to CMS Law the five grounds of the CPC challenge were:

  1. Future rent is not a “debt” and so the landlords are not creditors, such that the CVA cannot bind them;
  2. A CVA cannot operate to reduce rent payable under leases: it is automatically unfairly prejudicial;
  3. The right to forfeiture is a proprietary right that cannot be altered by a CVA;
  4. The CVA treats the landlords less favourably than other unsecured creditors without any proper justification;
  5. There is a material irregularity: the CVA fails to adequately disclose the existence of potential “claw back” claims in an administration.

Items 1, 2, 4 and 5 were rejected by the High Court, although item 3 was upheld, meaning that the landlord retains the right of re-entry and to forfeit a lease and therefore this right cannot be modified by a CVA.
This means that if they choose to, landlords can take back their property, although in the current perilous circumstances in the retail sector it is questionable if this would be in their interests given the difficulties they might have in finding an alternative tenant and their liability for rates even when the property is vacant.
The findings did however leave open the prospect of a challenge over the reduction in the rent value if it could be proven that it was below the current market value.
Given the growth in the use of CVAs to exit unwanted leases and reduce rent in the struggling High Street retail sector, the High Court judgement is to be welcomed, both for those retailers hoping to survive by restructuring their businesses onto a hopefully more sustainable footing by reducing their overheads, and for landlords, who now have some clarity about their position in such cases.

Categories
General Insolvency Rescue, Restructuring & Recovery Winding Up Petitions

Beware! Disputing a debt may not stop a Winding Up Petition

It is not enough to dispute a debt when dealing with a creditor’s Winding Up Petition, it is the disputed amount of the debt that matters.
A recent case involved a complex debt that was disputed where the Court made a Winding Up Order on the grounds that it was satisfied that more than £750 was undisputed.
While the High Court does not like creditors to use petitions for debt collection by putting improper pressure on a company, the Court does not have to resolve the dispute or agree how much is actually owed if it is satisfied that more than £750 is due.
£750 is the threshold amount needed for a Court to make a Winding Up Order.
All too often companies fail to deal with a creditor long before the hearing for a Winding Up Petition, where they have plenty of opportunity throughout the process to halt proceedings if the debt is disputed or to pursue a restructuring option if the company simply cannot pay the debt.
In most situations where creditors are pursuing overdue debts, and in all cases where a Winding Up Petition is served on a company, help from an experienced turnaround and recue adviser is needed if the company wishes to survive.
Companies should not believe that simply disputing a debt is in itself enough to ensure that such a Winding Up Petition will be dismissed.

Categories
General HM Revenue & Customs, VAT & PAYE Voluntary Arrangements - CVAs Winding Up Petitions

Winding Up Petitions

269 Company Winding Up Petitions are due to be heard in the High Court this coming Monday, 19th September where the list is still dominated by HMRC petitions.
None of the Companies listed are well known and unusually there are no football clubs listed however one with the name Three Merry Lads Ltd sounds like an interesting business.
Since introducing our handholding service for directors dealing with a Winding Up Petition, it is unusual for K2 not to have anyone to take along on Monday. We like to take directors to the High Court in London several weeks before their company’s Petition is heard so they know what to expect, but we continue to be surprised that so many reject the offer of this free service.
If you know anyone dealing with a Winding Up Petition or have a client who would like to come along to the Companies Winding Up Court on Monday or indeed any Monday do get in touch, call over the weekend if you want to join us on Monday 19th.
We love it whan a petition is dismissed following approval of a CVA.