R&I update – June 2021 – 1 / 4 观点
On 10 May 2021, the English High Court rejected landlords’ challenge to the company voluntary arrangement (CVA) of fashion retailer, New Look. The New Look decision was the first in a trio of highly significant judgments focused on a distressed tenant's ability to compromise landlord's claims (our coverage of the Virgin Active decision is available below).
The landlords' challenge focused on jurisdiction, unfair prejudice and material irregularity as a result of the following:
The court dismissed the landlords' challenge as follows:
Where a CVA proposal provides for a greater return than the relevant 'vertical comparator' (in this case administration), there is enough "give". CVAs can, in principle and depending on all the circumstances, treat creditors differently and can reduce rents to below market rent.
Applying a discount to landlords' future claims for voting purposes is permitted given they are unliquidated amounts and the starting point for such claims is £1. The discount of 25% applied to every landlord was justified here and there was no material irregularity.
It was key that the break rights granted to landlords allowed them to extract themselves from the terms imposed by the CVA if they considered them unfair. The amounts paid to landlords on the exercise of their break right must, however, reflect at least what the landlord would receive in the comparator scenario (administration).
The noteholders' claims (which secured the 75% majority) had been impaired by the wider restructuring because they had exchanged their secured debt for 20% of the equity in the company.
The judgment in New Look has validated market practice and will no doubt reinvigorate the use of CVAs for distressed companies with significant leasehold portfolios. The Regis judgment which followed also dismissed the landlords' challenges to the structure of landlord only CVAs.
The battle may not be over yet, however. The landlords in New Look have been granted permission to appeal on all the points.
To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.