Landlords who challenged the retail Company Voluntary Agreement (CVA) for the company Regis have scored a largely pyrrhic victory in their battle.
The action, which had been taken against the parent company of the brands Supercuts and Regis, had been to revoke a CVA taken out in 2018, but later terminated. The landlords had continued to challenge the CVA in terms of disclosure, arguing that the nominee had been in breach of their duties. Blanket vote discounting had also been challenged.
The court, under Mr Justice Zacaroli, ruled against the repayment of fees against the nominees of the CVA, but did rule to revoke it on the grounds that it was prejudicial to one creditor.
But, writing for Pinsent Masons, the law firm who represented the nominees, Amy Flavell and Stuart Taylor said that the revocation would have ‘no practical effect’.
“The applicants in the Regis CVA challenge,” wrote Flavell and Taylor, “were landlords of various properties where Regis UK Limited (in administration) operated its salon and beauty business under the Regis and Supercuts brands. Regis entered into a CVA in October 2018. The landlords raised a challenge against this in November 2018. The challenge raised was against both Regis and the nominees/supervisors of its CVA on the grounds that it caused unfair prejudice and material irregularity under section 6(1) of the 1986 Insolvency Act. A secondary claim was advanced against the nominees/supervisors for repayment of their fees.”
Flavell and Taylor added: “The landlords’ case against the CVA was based on two grounds of challenge: material irregularity and unfair prejudice. Other jurisdictional issues and grounds of challenge that were advanced in a recent case involving New look were excluded in this case after the landlords unsuccessfully applied to include them at an earlier stage. The landlords argued that if any of the grounds were successful then the nominees/supervisors had breached their duties in recommending the proposal to creditors, and so should be obliged to repay their fees because of the breach.”
Referencing the New Look case from last week, Flavell and Taylor said that, “[…] every ground of challenge was rejected by the High Court, save for the argument raised around the treatment of one creditor as critical.”
It was the treatment of this one creditor that caused the Court to revoke the CVA. However, as there was an absence of ‘bad faith or fraud’, the Court felt it was not appropriate to order the nominees to repay fees.
The written Decision handed down by the court made clear that the final verdict meant little. It read: “Revocation is a discretionary remedy and does not flow automatically from a conclusion that a CVA is unfairly prejudicial. The present CVA had already terminated and the only utility of revocation concerned the applicant landlord costs and limited indemnities. Zacaroli considered the proper course was revocation, a move that additionally sends a strong message to the market.”
Given that it was a largely moral victory, there was some comment from within the industry that this was an unabashed win for landlords. Melanie Leech, chief executive of the British Property Federation, said the verdict was ‘welcome news for property owners up and down the country’.
She added: “Mr Justice Zacaroli is sending a very clear message to the market – CVAs cannot be about hurting property owners to simply increase value for your shareholders, discounts on property owners’ claims must be reasonable and justified, and insolvency practitioners have a duty to ensure CVA proposals are fair.”
This post has originally been featured in Property Wire.