Debenhams CVA challenge considerations

Background

Some landlords of Debenhams Retail Limited stores challenged the proposed Company Voluntary Arrangement (CVA) on several grounds including that a CVA cannot reduce rent owed to a landlord as CVAs only apply to debts and future rent is not a debt because it has not yet fallen due.

They also argued that a CVA cannot remove the right of entering into the property (a right of re-entry) if the tenant fails to pay rent, claiming that a CVA cannot remove or change rights in property.

Decision

The term "debt" includes monetary liabilities that might exist from a legal relationship. Future rent may not be a present debt, but it is potentially likely to arise as a debt in the future, owed to the landlord. The Judge held that future rent was a type of debt and could be compromised by CVAs.

However, the Judge did agree with the landlords that a CVA cannot vary a right of re-entry. The right of re-entry exists independently from a debt. It exists because of the landlord and tenant's relationship. A CVA can modify monetary obligations under a lease which, if breached, allow the landlord to enter the property. CVAs cannot change the right of re-entry itself.

The CVA was modified to preserve the landlord's right of re-entry.

Discovery (Northampton) Ltd v Debenhams Retail Ltd [2019] EWHC 2441 (Ch)