Landlords Prove Unsuccessful In Challenging Debenhams' CVA Despite Its Somewhat Draconian Provisions

Discovery (Northampton) Ltd & others v Debenhams Retail Ltd & others [2019] EWHC 2441(Ch)

Company Voluntary Arrangements ("CVAs") are seen as most unfair by landlords who are often forced to continue to make a supply of premises at an imposed reduced rent.

A group of landlords known as the Combined Property Control Group ("CPC") unsuccessfully challenged the CVA proposed by Debenhams Retail Limited ("Debenhams"). CPC argued that, pursuant to section 6 (1) (b) the Insolvency Act 1986 (the "Act"), the CVA was unfairly prejudicial because it treated landlords less favourably than other unsecured creditors.

Background

A CVA is a legally binding arrangement entered into by a financially distressed company and its creditors. A CVA serves to allow a company to continue trading whilst its liabilities and debts are restructured. CVAs have become increasingly popular as a method of reducing the rental costs that commercial tenants (often retailers) perceive to be onerous. Debenhams' prepack administration was announced 9 April 2019. The company proposed a CVA soon after with the aim of restructuring the company's balance sheet and store portfolio. The CVA was approved at a meeting of creditors on 9 May 2019. On 10 June 2019 CPC launched its legal challenge against the CVA.

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