Landlords have become used to the concept of the retail CVA over the past few years, but the new post COVID-19 breed of CVAs has been pushing the boundaries as never before. Further, a new restructuring option – described by some as a “CVA on steroids” – is now available to tenants courtesy of the recently enacted Corporate Insolvency and Governance Act: the s26A Restructuring Plan. Restructuring Plans enable companies, with the sanction of the Court, to impose new terms on creditors even in circumstances where not all classes of creditor have approved the plan.
Two Court decisions last week have underlined the ability of tenants to impose these processes on landlords and to effectively force through new lease arrangements without consent.
- The High Court rejected a challenge brought by landlords to the New Look CVA which came into effect in September last year. The landlords claimed that the CVA terms unfairly prejudiced the landlords as a particular class of creditor, and that it was unfair that the CVA terms could be imposed on them against their will by the votes of other creditors who were not affected in the same way. The Court held that the fact that landlords were being treated differently from other creditors did not automatically mean they were unfairly prejudiced. The view of the Court was that the landlords would be better off under the CVA than if the company went into administration, and the rent reductions under the CVA were held to be fair given that the landlords were also granted early termination rights to bring the leases to an end if they wished to.
- Two days later, the Court sanctioned what has become known as the first “landlord” Restructuring Plan, for Virgin Active. The Plan proposed to compromise landlords’ rights, and had failed to obtain the requisite approval from the affected creditor class of landlords. The Court exercised its power to nevertheless approve the Plan, on the basis that other classes of creditor had approved the proposals and – again - that the dissenting landlords would be no worse off if the Plan were not approved (in which case the company would go into administration)
The use of CVAs and Restructuring Plans will only increase as the economic effects of the pandemic continue to bite and Government support for high street tenants is eventually withdrawn. These decisions are a stark reminder to landlords that their rights can and will be compromised by these processes, and that the scope for challenge going forward will be limited.