The High Court has rejected a challenge brought by landlords affected by the Company Voluntary Arrangement entered into by Debenhams. Although four of the five grounds advanced by the landlord creditors were rejected by the court, one ground was upheld which effectively lifts the moratorium imposed on landlords following the approval of a CVA.
The Debenhams CVA was approved by creditors on 9 May 2019. The landlords of 6 Debenhams stores in England issued an application challenging the CVA which closed stores and imposed rent reductions ranging from zero to 50%, depending on the category of landlord. It also imposed landlord and tenant break options which could be exercised at specific dates following the CVA approval date. Once approved, the CVA prevented the landlord from bringing or continuing legal action against the company for non-payment of rent or for breach of covenant or obligation by reason of the CVA.
Further, the CVA waived the landlord's right to forfeit the lease by virtue of the terms of the CVA or by virtue of any "CVA related event". The landlords argued that the right to forfeiture is a proprietary right which cannot be modified by a CVA. The court upheld this ground but ordered that the offending clause be struck from the CVA.
As the other grounds advanced by the landlords were rejected, the court declared that the CVA was valid and enforceable, subject to the deletion of the offending clause. While the court has concluded that a CVA by its very nature does not unfairly prejudice landlords, this decision has strengthened a landlord's position by putting CVA tenants at risk of losing their premises if a landlord exercises its right to forfeit.
its CVA was “designed to create a situation in which the company’s general body of unsecured creditors is paid in full at the expense of certain landlords and local authorities”