London’s High Court rules in favour of Regis which was fighting a challenge by their landlords that claimed they were unfairly prejudiced by Regis’ CVA proposals.
Regis UK Limited, operate its salon and beauty business under the brands of Regis and Supercuts. In October 2018 Regis entered a CVA but this was challenged by landlords just a month later. It was argued that the proposals caused unfair prejudice and material irregularity under section 6(1) of the Insolvency Act 1986.
Reasons of challenge:
- Certain creditors should not have been able to vote due to their debts being claimed as invalid = material irregularity
- Modification to leases were unfairly prejudicial
- Two critical creditors were treated differently
- The more suitable alternative would have been a pre-pack sale or sale following a trading administration, not a shutdown
- Inadequate disclosure of transactios between 2017 and 2018
- 75% voting discount of landlords claims
Why was the CVA challenges revoked?
All but one of the claims were dismissed by Zacaroli J:
- Lack of utility in the application; the court believed the only purpose of the application was to decipher if the CVA should be revoked and to determine the theoretical question of if nominees should be ordered to repay fees
- The possibility of irregularity was not material
- There was no unfair prejudice as landlords had the choice to terminate the lease or accept the proposal terms (which offered a more favourable outcome than any other alternatives)
The claim not dismissed was that the treatment of one critical creditor was not justified.
Despite the revocation of the CVA, former nominees and/or supervisors were not ordered to repay any fees.
Like the recent case with New Look, where the High Court also revoked its CVA challenges by landlords, on similar grounds, it should be learnt that CVAs remain a viable, useful restructuring tool. The decisions made by the High Court, in favour of the CVAs reassure other companies in use of them, if ever comes the need.