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High Court finds that a landlord’s right to forfeiture cannot be altered by a CVA

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High Court finds that a landlord’s right to forfeiture cannot be altered by a CVA

24 Sep 2019

On 19 September 2019, the High Court ruled on the landlords’ challenge against Debenhams’ CVA and found:-

1. Future rent falls within the definition of a debt and therefore landlords are creditors bound by a CVA;

2. A CVA that reduced rent under an existing lease is not automatically unfair;

3. The right to forfeiture is a proprietary right that cannot be altered by a CVA;

4. Treating the landlords differently than other unsecured creditors was necessary to secure the continuation of the company’s business. However there will be “unfairness” if landlords are expected to take reductions in rent below the market value of the premises;

5. A failure to disclose certain relevant information may be an irregularity but it will not constitute a material irregularity unless it altered the outcome of the approval of the CVA.

The outcome will provide clarity for landlords who are currently considering a CVA proposal. More importantly, however, the High Court’s finding that a CVA cannot alter a landlord’s right to forfeiture would appear to be at odds with terms contained within most retailer CVAs approved over the 18 months.

To speak with one of Kuits’ specialist Restructuring & Insolvency solicitors about a potential or current CVA, please call 0161 832 3434 or email richardpalmer@kuits.com.

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