Hot off the press, in a judgment released on 10 May 2021, the High Court has ruled against a group of New Look's landlords ("the Landlords") who challenged the retailer's company voluntary arrangement ("CVA").
As with many tenants in the retail sector, New Look struggled through the pandemic as a result of lengthy store closures. The company put forward proposals for a CVA and in September 2020 the CVA was approved by a majority of creditors. The CVA provided for a move to turnover-based rents at the majority of New Look's UK stores.
The landlords challenged the CVA on three broad grounds:
- From a jurisdictional perspective, in that it did not properly constitute a CVA or an arrangement as intended by insolvency legislation and that it sought to modify landlords' proprietary rights;
- There were material irregularities in the way in which the CVA was approved; and
- The Landlords were unfairly prejudiced by the CVA.
The Landlords argued that the CVA created different classes of creditors who were treated differently and who should, they contended, have been treated as separate classes and that there was not sufficient "give and take" between the parties. a further set back for crusading landlords hoping to stem the tide of ever more swingeing CVAs.
The Landlords complained about issues with the calculation of claims for voting purposes and omissions and inaccuracies in the proposal document.
Finally they claimed that the CVA was unfairly prejudicial to the claims of a group of creditors as the majority of votes in favour of the CVA came from creditors unimpaired by the CVA, and the difference in impact between creditors who were affected was also very substantial.
The Landlords were unsuccessful on all three grounds. The Court disagreed with the Landlords' interpretation of the insolvency legislation and found that the differential treatment of creditors did not amount to the CVA being unfair.
The judgment is good news for tenants who have put in place or are considering restructuring options and shows that the Courts will take a pragmatic approach when looking to support the recovery of the retail sector during this time. On the other hand the case represents a further set back for crusading landlords hoping to stem the tide of ever more swingeing CVAs.
