Increasing 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)  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.