Published on: 12th May 2021
On 10 May 2021, the much-anticipated judgment was handed down in the New Look CVA case. All 330 paragraphs can be found here. This was a challenge to New Look’s proposed CVA brought by various landlords including Lazari Properties 2 Ltd, The Trafford Centre Ltd, LS Bracknell Ltd and others.
In summary, the New Look CVA was upheld and the court found that it was not unfairly prejudicial to landlords. The challenge included issues with the voting at the CVA (creditors whose claims were not compromised were allowed to vote) and with the different treatment of different groups of creditors within the CVA itself. The court’s decision confirms that CVAs must be considered on their own facts, and what looks to be unfairly prejudicial on first blush may nevertheless turn out to be either not unfairly prejudicial or can be justified on the facts.
In this article I look at the key take away points from the case in more detail.
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We already know that a landlord is a creditor in respect of both outstanding rent and rent falling due in the future. In respect of that future rent claim, this is treated as unliquidated and unascertained (pursuant to the decision in the Doorbar case). This means that for voting purposes, pursuant to Rule 15.31(3), the future rent claim can be valued at £1 unless the chair decides to put a higher value on it. In making that decision, the chair must examine the evidence put forward by the landlord and any other creditor or debtor. If the chair concludes that he can “safely attribute to the claim a minimum value higher than £1 then he should do so” (per the decision in the Newlands case).
Further, a CVA is perfectly able to compromise a future rent claim, as it does other claims. And it is able to do this even where the company remains in possession (as decided in the Debenhams CVA) – albeit that decision was effectively challenged in this case.
Next up let us look at the proposed CVA in this case. The creditors were categorised as follows:
The challenge was put on three main bases:
In this article I am only going to look at the unfair prejudice point, however for completeness the other challenges did not succeed.
The court held that that it is not necessarily unfairly prejudicial that the CVA was approved only with the votes of unimpaired creditors. Rather, it will depend on the particular circumstances of each case.
The court took this view largely because the outright outlawing of such a CVA would occur regardless of the voting percentages. For example, the CVA would not be approved where only 20% of the compromised creditors voted in favour, nor where 74.9% of the compromised creditors voted in favour. Clearly in the latter case that would be an unsatisfactory outcome and a more flexible approach is needed.
On these two aspects, the court focused on vertical and horizontal comparisons:
The following key arguments were considered:
The key underpinning point in this case was that nothing in the CVA was being forced on the landlords as a result of the CVA: it had to be borne in mind that the inability of New Look to pay rent in full was a consequence of New Look’s insolvency, not the CVA.
Against that backdrop, the court considered that the CVA in fact offered landlords a choice between terminating their lease and going off to find a new tenant, or continuing their lease but on reduced rent and modified terms. These options were far more beneficial than the landlords would receive in an administration, and the differential treatment in the CVA was not unfairly prejudicial.
If you would like to discuss this case and how it impacts you, or for more information generally, please do not hesitate to contact Alexandra Withers at email@example.com.