If you thought the popularity of CVA's had been overshadowed by restructuring plans you might have to think again and watch what happens in the coming months. As you will know from the press there are a number of high-profile retail CVA's which are being challenged by landlords – New Look and Regis to name just two.

The High Court in England has just released it's decision in the latest bout of landlords v tenants in the CVA arena. New Look are the victors having successfully defended the challenge mounted against the proposed CVA by a group of landlords who were adversely affected by its terms.

Arguments advanced by the landlords included:

  • · that a CVA cannot treat different groups of creditors differently;
  • · that the modifications to the New Look leases were unfairly prejudicial to landlords; and
  • · that CVAs were not designed to be and should not be used in complex restructuring arrangements.

Zacaroli J, a leading insolvency judge, rejected all of the landlords' grounds of challenge. The Court held that the fairness of the CVA would depend on all of the circumstances and just because one group of creditors received different treatment, under the CVA, it will not necessarily result in unfairness to other creditors.

Another important feature of the case was the analysis of CVA's compared to restructuring plans. Zacaroli J gave guidance as to some fundamental differences between schemes and plan. This guidance is likely to feature in some of the contested restructuring plans which are coming before the Courts.

This New Look decision, together with the decision in Debenhams may give renewed impetus to companies to use CVA's to help them restructure as it confirms the flexibility of CVAs as a restructuring tool.

Challenges have also been mounted by landlords to both the Regis CVA as well as the Virgin Active plan.

We know that landlord engagement in CVA's and restructuring plans are high. In New Look, landlord engagement was at 88%. If more companies do propose CVAs where they are designed to deal with a company's lease obligations, given the level of landlord engagement surely one can't expect the controversy and litigation on these issues to diminish.


Lucy McCann