May 10, 2021
New Look has won a crucial court fight, defeating a landlord challenge to its company voluntary
arrangement.
Four property firms — Land Securities, British Land and the new owners of the Trafford Centre supermall in Manchester — had argued that they were unfairly treated by the CVA. They said its financial impact on them wasn’t calculated correctly and their voting rights regarding the CVA were also inaccurately worked out.
The ruling in favour of New Look is likely come as a relief to retailers, especially after two recent court cases saw them losing in favour of landlords. In those cases Frasers Group was ordered to pay rent arrears to AEW UK Reit and Bank of New York Mellon (International), while The Fragrance Shop was told to pay Westfield.
But it will dismay property firms with the four in this case having taken action over what they saw as misuse of solvency regulations.
Last autumn, New Look had used its CVA to strike new rent deals and get rent arrears written off. Many of its stores switched to turnover-based rents with 68 of them being rent-free. It was its second CVA in under two years and although almost 60% of landlords voted against it, the process was still approved by a majority of New Look creditors.
The landlords said the CVA was approved with the help of the votes of creditors that had been unaffected by the arrangement or were treated more favourably. That included unsecured creditors such as suppliers. They argued that the CVA proposals were unfairly prejudicial to property owners.
But the court disagreed and it has left the property sector feeling it’s unfairly shouldering the burden of retailer struggles given that rent deals are the key focus of most CVAs. However, others argue that a switch to the kind of rents that retailers can afford merely reflects market realities .
New Look CEO Nigel Oddy said he was pleased and that the ruling allows it to focus on the future with confidence, while Land Securities said it was disappointed and it thinks the chances of more CVAs being launched in the future have increased.
That’s probably true with the process having already proved popular with retailers seeking to renegotiate rents and exit unprofitable stores.
The judgement in favour of New Look is perhaps unsurprising. Despite the courts having twice ordered retailers to pay rent arrears in recent judgements, the legal system has been less willing to overturn CVAs with previous failures to do so having included Debenhams in 2019.
Simon Underwood, business recovery partner at accountancy firm Menzies LLP, told Fashionetwork.com that “this is a victory for the company voluntary arrangement, demonstrating its potency as a tool for restructuring businesses on the brink of insolvency.
“They can be particularly effective as a restructuring tool for businesses that despite experiencing cashflow difficulties during the pandemic, have a viable future ahead of them.
“This ruling will not please commercial landlords who have long felt unfairly treated by CVAs and the case for blocking turnover-based rents has all but disappeared.”