Is it a pyrrhic victory, or the first big blow in a new battle? We can't know until we look back at in from the future, but there was one big victory for landlords in the High Court yesterday (Monday 17 May).
The story is that, in 2018, Regis UK proposed a CVA that included rent cuts of up to 100 per cent at some of its 233 shops and concessions. In the view of the NTI newsroom, a 100 per cent rent cut means that the landlord owes their tenant for the cost of the stamp on the envelope containing a letter telling them to stick their rent. The multi-battle scarred landlords hit back and, led by warriors from Hammerson and British Land, launched a legal challenge to the proposal, which they argued treated them unfairly as creditors. And, to be fair, they had a point.
Ultimately, the CVA was terminated when the salon chain, together with their sister company Supercuts, where you can spend money on a haircut quicker than on a cuppa and a bun at Fortnum and Mason, went into Administration in 2019. However, a group of landlords continued to pursue the legal challenge in an attempt to set a precedent for future CVAs by retail companies. They claimed that the restructuring showed material irregularities or (if they lost on that point) was unfairly prejudicial against them in numerous ways, including a 75 per cent discount on landlord votes applied at the creditors’ meeting to approve the CVA.
Mr Justice Zacaroli rejected all but one of the landlords’ arguments. However, the one he liked railed against Edward Williams, a former partner at Grant Thornton who advised on the CVA. His Honour was very unimpressed with Mr Williams, saying that his actions fell below required standards by recommending that International Beauty, which is backed by Regent LP, a Los Angeles-based private equity group, should be treated as a critical creditor and repaid a debt of almost £600,000 in full. It was on this basis that the Arrangement should be revoked in full.
The British Property Federation were in an upbeat mood following the verdict, saying: “Today’s verdict will be very welcome news for property owners up and down the country. CVAs cannot be about hurting property owners to simply increase value for your shareholders, discounts on property owners’ claims must be reasonable and justified and insolvency practitioners have a duty to ensure CVA proposals are fair.”
Giving Grant Thornton a shot at redemption, they countered by saying: "Even though the court has ordered the revocation of the CVA against the company Regis, this long-running claim has ultimately failed as against the former nominees."
So, maybe it is a pyrrhic victory and not a major change of direction in favour of landlords. Would the case have been won, and the CVA been revoked had it not been for the payment back of this major creditor? Maybe not ... but it's a start.
