Can UK retailers use a CVA to re-write existing lease arrangements?

Shoppers walking down the high streetIncreasing pressures placed on those operating in the retail and hospitality sectors as a result of COVID-19, means there is likely to be an increasing use of CVAs in these sectors. The intention would be to help support and restructure businesses in distress, but could retailers use a CVA as a mechanism to re-write the terms of its leases?

In the second of our series of blogs regarding CVA challenges in Ireland, we consider the recent decision of New Look Retailers (Ireland) Ltd v Companies Act 2014 (Approved) [2020] IEHC 514, which should be noted as a cautionary warning to UK companies not to (mis)use the CVA process to force landlords to accept changes to lease terms.

The New Look case considered whether New Look Retailers (Ireland) Ltd (the “Company”) could enter examinership under Irish law and seek rent cuts from its landlords despite not being insolvent. The High Court refused to appoint an examiner on the basis that to do so, would be ‘entirely premature’. Indeed, the Company was been criticised for trying to use an insolvency procedure in order to obtain rent reductions without negotiating with landlords.

The upshot of this case is that:

  • companies should take proactive steps to resolve differences with landlords before seeking court protection; and
  • CVAs should not be utilised simply as a mechanism to negotiate lower rent.

For a look at the impact of the recent Monsoon case on UK retailers, please see our earlier blog. Continue Reading

Victory for Irish Landlords in Monsoon CVA Rent Disputes

Empty street in Marylebone district, London, EnglandThe COVID-19 pandemic has exacerbated the problems faced by high-street retailers. Store closures during lockdown, changing consumer behaviour and the resultant loss of turnover and profits have caused many businesses to seek to reduce their rent payments. Company Voluntary Arrangements (“CVAs”) have become fashionable tools for trying to secure such rent reductions. In this blog, we consider Judge McDonald’s ruling in Apperley Investments Ltd & Ors v Monsoon Accessorize Ltd (Approved) [2020] IEHC 523 which sheds light on how CVA terms impacting property rights may be enforced on landlords outside the UK. Continue Reading

The Concerning Impact of Brexit on OTC-Derivatives

For derivative transactions that are relocated from the United Kingdom to the EEA or newly concluded there, in many cases new master agreements must be concluded between the involved parties. The total volume of European derivatives trading (measured by open gross notional amount) amounted to around €681 trillion at the end of 2019 as announced by the European Securities and Markets Authority (ESMA) (see here). Of this, 8 percent was accounted for by exchange-traded derivatives and 92 percent by over-the-counter (OTC) derivatives. According to the Bank of England, the open gross nominal amount of the non-clearable OTC derivative contracts affected by the Brexit is around £17 trillion between the EU and UK, of which £12 trillion is currently due to mature after 31 December 2020 (see here).

If financial service providers and their customers do not manage to cope with the restructuring and the flood of relocations in time, some hedges may no longer take place at all or only at greatly increased costs.

Continue Reading

Commercial Rent Arrears, Recovery and Administration (UK)

In this article, Devinder Singh  and James Morgan QC consider the status of notices served under the Commercial Rent Arrears Recovery scheme, in particular the timing, security and priority position of such notices.

Given that landlords are not able to serve valid CRAR notices until 31 March 2021 (see our blog here), we expect there to be an increase in use when the temporary restrictions come to an end and therefore it is all the more important for commercial landlords to understand their rights under CRAR.

This article was first published by Thompson Reuters, trading as Sweet and Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ in Insolvency Intelligence (2020) as Commercial Rent Arrears, Recovery and Administration: Questions as to timing, security and priorities Issue 4 pages 107-128 and is reproduced by agreement with the publishers.

Caution for UK lenders: failure to abide by deed of priority may result in appointment of administrators being void

The case of Arlington Infrastructure Ltd (In Administration) v Woolrych [2020] EWHC 3123 (Ch) is a cautionary reminder to qualifying floating charge holders (and their advisors) to review the terms of all security documents, before seeking to appoint an administrator.

In this case, failure by junior chargeholders to obtain consent from senior chargeholders (as required under a deed of priority) prior to the appointment of administrators led to the court finding that the out of court appointment of administrators was invalid (as opposed to being a procedural irregularity that could be cured).

The facts of this case are different to those cases where a deed of priority is in place between two chargeholders with qualifying floating charges over the same company, but the key takeaway applies to all cases where a qualifying floating charge holder is seeking to make an appointment – check all security documents to ensure that the charge is enforceable before making an appointment.  Failure to do so may result in an invalid appointment. Continue Reading