The applicants were the joint liquidators of SHB Realisations Ltd, formerly BHS Limited (the “Company”). Prudential Assurance Company Ltd (“Prudential”) was landlord of two of the Company’s properties.
The Company entered a company voluntary arrangement ("CVA") in March 2016. The Company entered administration in April 2016 and then creditors' voluntary liquidation in November 2016. The CVA was terminated in December 2016 following the non-payment of sums due to landlord creditors.
Upon termination of the CVA, clause 25.9 took effect which stated that upon termination "the compromises and releases effected under the terms of the CVA shall be deemed never to have happened" and the creditors would have the claims against the Company that they would have had if the CVA was never approved.
Prudential contended that they were owed the full amount of outstanding rent as would be due under the original lease and the balance was payable as an administration expense.
The Applicant resisted this on two grounds:
Upon deciding Prudential was owed the amounts due under the original lease, the Court determined that these sums were payable as an administration expense, even though the full rent was a contingent liability during the CVA.
CVAs do not operate as contracts in a true sense and do not therefore permanently vary the terms of the original lease. If an insolvent company wishes to pay reduced rent should the CVA fail, they should include words to this effect in the terms of the CVA.