Landlords have lost a legal challenge against the restructuring at high street fashion chain New Look, in a major setback to their efforts to curb what they regard as misuse of insolvency laws.
A group of four landlords, including Land Securities and British Land plus the new owners of Manchester’s giant Trafford Centre, had challenged New Look’s use of a company voluntary arrangement to reset its rents for the second time in three years and to write off rent arrears.
They argued that the financial impact of the CVA on landlords, and therefore their voting rights, was incorrectly calculated, and that landlords were unfairly prejudiced because the approval of the proposal was obtained with the votes of creditors that were either not affected or treated more favourably.
Almost two-fifths of the landlords voted against the proposals, but the CVA still proceeded because other unsecured creditors such as suppliers voted in favour.
The landlords also said that because the proposal was part of a wider financial restructuring that also involved bondholders who were treated differently, it fell outside the scope of a CVA.
Justice Zacaroli rejected their arguments on all counts, stating in particular that the fact that landlords could be outvoted by other creditors did not mean that their interests were being unfairly prejudiced.
Nigel Oddy, chief executive of New Look, said he was “pleased” that the court had ruled in the company’s favour and “can look to the future with confidence”.
But Land Securities said it was “disappointed”.
“In challenging New Look’s CVA our intention was to get certainty as to how and when CVAs should be used, particularly in the context of a wider complex restructuring, where only a subset of creditors are impacted,” the company said.
It added that the outcome “only increases the likelihood of future CVAs, and potentially other restructuring tools being run with insufficient consultation and transparency with key creditor groups”.
Doug Robertson, a restructuring and insolvency partner at law firm Irwin Mitchell, said the judgment would be a relief for struggling retailers. “Had the jurisdiction challenge been successful, it would have placed limits on the aggressive use of CVAs,” he said.
Katherine Campbell, head of real estate disputes at Reed Smith, said it was “a disaster” for landlords. “It suggests retailers can now vary the terms of leases with impunity.”
Several recent proposals, including those of New Look and Clarks, the footwear chain, have involved switching to rents based on turnover and the write-off of rent arrears built up during the coronavirus pandemic.
But despite landlords’ frustrations, it has proved very difficult to overturn CVAs in the courts. An attempt to challenge a Debenhams proposal was rejected in 2019 and Zacaroli will soon rule in a separate case involving Regis, a chain of hairdressing salons that implemented a CVA in 2018.
A challenge to a controversial restructuring plan at gym chain Virgin Active is also being challenged in court.
This article has been amended to correct the proportion of landlords that voted against the proposals