The High Court recently dismissed a landlord creditor's application to overturn a company voluntary arrangement (CVA) initiated by coffee shop chain Caffé Nero. Here, we recap the key facts of the case and summarise the highlights of the High Court's ruling.

The facts

In November 2020, Caffé Nero – hit hard by the COVID-19 pandemic – proposed a CVA to creditors to compromise rent arrears (at 30p in the £1) and reduce future rents for the company's premises.

Shortly before the electronic vote on the proposal was due to close, EG Group (EG) offered to acquire Caffé Nero's parent company and pay Caffé Nero's landlords' rent arrears in full. The directors and CVA nominees declined to postpone the vote, the offer was rejected and the CVA proposal approved.

A landlord of the company, backed by EG, challenged the CVA on grounds of material irregularity and unfairness. He claimed that the directors and nominees should have postponed the vote to allow creditors to consider EG's offer, and a modification to the CVA reflecting the offer was ineffective because the majority of creditors had already voted by the time the modification was made.

The decision 

The court rejected the challenge and held that:

• The directors and nominees had made a reasonable decision not to postpone the vote to consider an uncertain and last-minute offer as this could have caused the CVA to fail leading to a worse overall outcome for creditors.
• Electronic creditor voting is standard in CVAs and cannot be postponed without a court order, which was not guaranteed and added to the risk.
• A modification to the CVA that is beneficial for the company and its creditors, made before voting ends, will be effective. Any votes received in favour of the CVA before the modification will count after the CVA has been modified.

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.