The High Court has recently brought good news for landlords in its quashing of the Company Voluntary Arrangement (CVA) proposed by the administrators of Sixty UK Limited, which trades under the brand names Miss Sixty and Energie. The Court ruled that the terms of the CVA unfairly prejudiced landlord creditors, with the Judge, Mr Justice Henderson, commenting that the CVA “should never have seen the light of day”.
The CVA allowed for the release of Sixty UK Limited’s solvent Italian parent company from all liabilities under guarantees given in leases of four closed stores upon the payment of a lump sum to the respective landlords. The claimant landlord in this case, Mourant & Co Trustees, had the benefit of guarantees under two of the leases of which it estimated the commercial value to be in excess of £1m. Sixty UK Limited had been advised of this value but had maintained a proposed total payment of £0.3m as a release from both leases.
In setting aside the CVA, the Judge pointed out that had the company gone into liquidation instead of the CVA, the landlord would still have had the benefit of the guarantees and could have entered into new leases with the solvent guarantor upon disclaimer by a liquidator. The Judge also noted that, other than the landlords of the four closed stores, all of the company’s creditors had been paid in full under the provisions of the CVA and there was no justification for this bias.
CVA proposals are often balanced in the effect that they have on a company’s creditors, meaning an uncertain Court challenge is not always an option, but tenants should be aware of the Court’s approach to more extreme and prejudicial CVA’s which unreasonably overlook the interests of landlords.