Real Estate

US landlords file legal challenge to Arcadia


A group of American property companies has filed a legal challenge to Arcadia’s decision to push its US subsidiary into administration, threatening an expensive distraction to Philip Green’s plans to put his ailing empire on a firmer financial footing.

In papers filed in a New York bankruptcy court, the landlords accuse Arcadia of “engaging in a convoluted scheme to deprive the . . . US landlords of their bargained-for contractual rights by manipulating and exploiting a private, little-used out-of-court process in the UK known as a company voluntary arrangement”.

Deloitte was appointed as administrators to Arcadia USA, a UK-registered company that operates Topshop stores in the US, on May 22. The administration is separate to the CVAs for the group’s UK businesses but is part of the same restructuring plan, designed to reduce overheads and close unprofitable stores.

The papers opposing the administration were filed in the US on June 4, two days before first creditors’ vote on the CVA in the UK, and were accompanied by a letter requesting that Deloitte consider adjourning that vote.

The meeting was subsequently put back, but the CVA was approved at a second meeting last week. The US landlords, led by Vornado, said that as a result their leases “will be eviscerated without any discovery and little due process”.

Vornado owns both of Topshop’s high-rent New York stores. Others joining its ex parte motion include Simon Group, Caruso and Canadian real estate group Brookfield.

The landlords said that while they were “frozen out” of the CVA process, they are affected by it because of the interconnected nature of guarantees within Arcadia and because it may result in reduced recoveries for US creditors.

Caruso pointed out that its two Topshop leases were guaranteed by the parent company, which is part of the CVA process. It said Arcadia USA had failed to disclose the existence of multi-debtor proceedings in its paperwork or at the hearing to consider an interim approval of the liquidation sales at the US stores.

“Caruso is concerned that the group is engaging in a scheme to exploit areas of UK insolvency law that limit due process and disclosure to creditors,” it said, in comments that are likely to be viewed sympathetically by many of Arcadia’s UK landlords.

Lawyers for Deloitte said in a letter to the presiding judge that they were “working towards a consensual resolution” of the dispute. The final hearings in the case have been postponed until July 19.

Arcadia USA operates 11 Topshop stores in the US, including in Miami, Las Vegas, Los Angeles, Houston and Chicago as well as New York. Sir Philip expanded into the US market in 2009, when New Yorkers queued around the block as he and supermodel Kate Moss officially opened its first store there.

But the last annual accounts, for the year to August 2017, show a loss of £23.6m and net liabilities of £65.8m. The minutes of a board meeting held on May 22 state that net liabilities had risen to £99.4m and that as a result of continued losses, the parent company had withdrawn its financial support.

The Sunday Times first reported the court actions. Arcadia and Deloitte both declined to comment.



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