Leave to appeal granted on five grounds in New Look’s CVA challenges


– Jurisdiction and unjustified prejudice subject to appeal

First instance decision

On May 10, the owners lost their first-instance lawsuit against fashion retailer New Look’s use of a corporate voluntary agreement (CVA) it put in place to help it restructure. his activity.

The owners made several points of contention in their original claim, the most important from a legal and business perspective that CVA jurisdiction does not extend to complex and differential arrangements.

Our analysis of the first instance decision is here.

Leave to appeal

Leave to appeal the decision was granted in a back-to-back hearing on May 14. The second to fourth plaintiffs (Trafford Center Limited, LX Bracknell Limited and 10 others, Fort Kinnaird Nominee Limited and 20 others) applied for and were granted leave to appeal the court’s dismissal of:

their legal challenge; and

their case that the CVA was unfairly damaging.

The particular points of the argument are distributed as follows:

Jurisdiction

1. The scope of section 1 (1) of the Insolvency Act 1986: whether the CVA can, from a jurisdictional point of view, encompass different transactions with different groups of creditors: the judge erred in rejecting the argument that a CVA proposal cannot constitute a “match” or an “arrangement “Only if all the creditors are able to work together in their common interest.

2. “Giving and taking”: there was not or not enough “give and take” between the Company and: (I) compromised owners, (ii) unsecured ordinary creditors and (iii) holders of SSNs. In particular, the judge wrongly assimilated “give and take” with the vertical comparison rather than analyzing the changes in the contractual rights of creditors under the proposed arrangement. In addition, reference should not have been made to the parallel system to establish the “give” of SSN holders.

Unfair prejudices

3. The congestion of votes and the inherent injustice: whether a threshold vote obtained by a majority of interested creditors is inherently unfair: the court should have found that a CVA is unfairly prejudicial to compromised creditors whenever the required majority of 75% is reached with the votes of uncompromised creditors or treated differently.

4. Overcrowding of votes and SSN holders: if ground 3 is unsuccessful, in any event, the court erred in concluding that the congestion of votes by the holders of SSNs was not unfairly prejudicial to the compromised owners. The court’s conclusion that SSN holders, voting for the unsecured portion of their debts, are in the same category as compromised owners is not correct, given the future equity interests of SSN holders conferred in under the parallel program.

5. Rent reductions: future rent reductions are inherently unfair as long as a tenant is allowed to stay in the occupation.

6. Reductions in rent on the facts: if ground 5 is unsuccessful, then in any event the termination rights granted to compromised owners do not alleviate injustice as they do not place those owners in the same position as in the relevant comparator.

Comment

Doug Robertson, Restructuring and Insolvency Partner at Irwin Mitchell Law Firm, said:

“The legal issues in question have far-reaching business implications, and many, especially the homeowner community, will be encouraged that the trial decision is not the last word.”

Regis

At the time of writing, the Regis decision (Carraway Guildford (Nominee A) Limited and Others v Regis UK Limited and Others, No.8276 of 2018) is due at 10 a.m. on May 17. Regis was heard by the same judge and covered many of the same issues (missing jurisdiction, denied late addition), with a detailed disclosure review expected.

“The legal issues in question have far-reaching business implications, and many, especially the homeowner community, will be encouraged that the trial decision is not the last word.”

Doug Robertson, Restructuring and Insolvency Partner, Irwin Mitchell Law Firm


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