Oceanfill Limited v Nuffield Wellbeing Limited and Cannons Group Ltd examines how Part 26A of the Companies Act 2006 affects the rights and liabilities of third parties. Part 26A is designed to help companies in financial difficulties, allowing them to arrange court-sanctioned restructuring plans. This is particularly topical given the current economic climate.

In this case, the restructuring plan under Part 26A (the “Plan”) reduced the liabilities due from Virgin Active Limited and associated companies as tenants under a lease with Oceanfill. Oceanfill applied for summary judgment for the full amount of the arrears against Nuffield Health and Cannons Group, who had given guarantees when the lease was assigned to Virgin. The dispute focused on how Part 26A affects guarantors’ obligations and to what extent they remained liable to Oceanfill.  

The guarantors raised two arguments to challenge liability:

• The Plan constituted a rewriting of the lease and released Virgin from liability, such that the sums claimed against them as guarantors had not fallen due. This was rejected on the basis that either
  • the restructuring amounted to a compromise between the landlord and the tenant but did not alter or compromise Oceanfill’s rights against third parties such as the guarantors; or
  • if it did re-write the lease, it only did so between the landlord and tenant and did not affect the guarantors. 
• The guarantors were released from their obligations because the Plan varied the terms of the lease.  This argument failed because the licence to assign which contained the relevant obligations clearly stated that
  • any release of the tenant from its obligations would not result in a release of the guarantors from their obligations and
  • any release must be under seal. As there had been no such release, the guarantors remained bound by their obligations.

The case is good news for landlords, opening the door to recover the full amount of arrears from third parties where a tenant’s Part 26A restructuring plan has been imposed on a landlord, even if they voted against it (known as a “cross-class cram down”). It also highlights the importance of careful drafting to ensure that guarantors are not released from their obligations if the tenant’s liabilities are varied.