Following in the footsteps of the New Look CVA challenge judgment (see our blog here) it was not unsurprising that Zacaroli J dismissed all but one of the landlord challenge claims when handing down his judgment in Regis.
The Regis CVA challenge has been ongoing since November 2018. Initially it was thought (following Regis entering into administration and the CVA terminating) that the challenge application would fall away, but with questions still remaining – such as whether the nominees/supervisors should be ordered to repay their fees if the landlords were successful with their challenge – the challenge continued.
Whilst the CVA was revoked, on the basis that the treatment of one creditor (IBL) as critical was not justified, the landlords failed on all other challenge grounds.
Although the CVA was revoked, and Zacaroli J found that the nominees had breached their duties by recommending the proposal without sufficient enquiry as to the treatment of IBL as a critical creditor, the court did not order the former nominees/supervisors to repay their fees.
Zacaroli J stated “it would not be appropriate (in the absence of fraud or bad faith) to deprive a nominee of fees in a case where, had he or she been sued in professional negligence, a claim to deprive them of their fees would have failed”. Particularly in circumstances where the services provided by the Nominees could not be (and were not) described as being without value. Welcome relief for the insolvency practitioners concerned, but Zacaroli J did not rule out the possibility that the Court might have jurisdiction to make an order of this kind should the correct circumstances arise.
The consequential revocation of the CVA in Re Regis UK Limited  EWHC 1294 (Ch) was a minor success for the landlords but it is likely to have limited impact on the shape or drafting of future proposals.
One question that we expected the decision to address was whether a CVA can permanently vary the terms of a lease beyond the CVA period (see our previous blog on this point). However, by the time the case came before the court, the administrators had agreed to allow all landlords to claim in the administration for their full contractual amounts and consequently it was agreed between the parties that the revocation of the CVA was not required in order to restore the landlords to their pre-CVA rights. Accordingly, the decision does not provide judicial guidance on this point.
As to the other grounds of challenge and adopting the same reasoning as in the New Look decision the remaining challenge grounds were dismissed.
The grounds of challenge were:
- Inadequate disclosure – criticisms of the disclosure within the CVA proposal of possible antecedent transactions in 2017 and 2018 involving the company.
- Estimated Outcome Statement – the landlords argued that the relevant alternative should have been a pre-pack sale or sale following a trading administration (not a shut down)
- Voting – certain creditors should not have been allowed to vote because their debts (were allegedly) invalid and as a consequence there was a material irregularity.
- Modifications of Leases – modifications to the leases were unfairly prejudicial.
- 75% Voting Discount – discounting landlords’ claims by 75% for voting purposes constituted a material irregularity or unfair prejudice.
- Treatment of creditors – differential treatment of two critical creditors was not justified and there was unfair prejudice.
Other than the treatment of critical creditors, Zacaroli J dismissed all of these claims either on the basis that there was no irregularity, or if there was, it was non material.
Of note, and following New Look, Zacaroli J found that there was no unfair prejudice in circumstances where landlords are given an option to either terminate the lease or accept the terms of the proposal (which offers a more favourable outcome than the relevant alternative) emphasising the value of the option to break in addressing fairness.
Retailers should feel reassured by the decisions in New Look and Regis that CVAs remain a viable and useful restructuring tool. However, practitioners should note that Zacaroli J has granted permission to the landlords to appeal the New look judgment and depending on the outcome of that, we could see retail CVAs back under the spot light.