2. The Cva: Ongoing issues
Jasvir Jootla & Clive Chalkley

3. Jasvir Jootla Clive Chalkley Partner Partner
Restructuring & Insolvency
Clive Chalkley
Partner
Property Litigation
Real Estate Group
Jasvir is specialist in all types of debt restructuring and corporate recovery work and she advises corporates, boards of directors, all types of lenders, investors, landlords, tenants, insolvency practitioners and receivers on restructuring and insolvency matters. She helps clients deal with all of the tricky and technical issues, pressures and problems arising from financial distress. Recently Jasvir has been working on an enforcement by a lender on a development site using the power of sale, advising a lender on the insolvency of Jamie’s Italian, a partial group insolvency of hotel assets, advising on risk mitigation structures for developer clients and restructuring in the FE sector.
Clive Chalkley is a partner who enables clients to manage their property disputes to achieve a commercial advantage. Clive specialises in providing commercial, practical and innovative solutions to difficult property disputes, saving his clients time and money. Property is a complicated and technical area of law. Clients need an adviser who is an expert in the field, but who can explain even the most complex matter in simple terms. Clive's straightforward approach enables clients to understand the issues and take control of their disputes. Clive is an expert in finding innovative solutions to difficult property disputes and devising new strategies for achieving his clients' aims. This reputation has led him to be noted in Legal 500 for his "off the wall creativity". Clive has considerable experience of managing insolvency issues within the context of property. He has extensive experience of acting on creditors schemes of arrangements, advising on CVA, Administration and liquidation.

4. THE Cva - ONGOING ISSUES
Changing attitudes to CVA’s
Challenge position under section 6 Insolvency Act 1986
House of Fraser Legal Challenge
The combination of Schemes of Arrangement
Landlord’s Responses to CVA’s
Other Tenant’s Responses to CVA’s

5. Landlord Changing attitudes to cvas
Challenging
Accommodating

6. The Challenge – Section 6 Insolvency Act
Grounds that:
A –  the voluntary arrangement unfairly prejudices the interests of a creditor, member, contributory.
B – there has been some material irregularity at or in relation to the meeting or the relevant qualifying decision process.

7. The challenge (continued)
Application by:
Creditor/shareholder
(person entitled to vote at the meeting/relevant qualifying decision procedure)
Person who would have been entitled to vote if had notice
Nominee
Prior liquidator/administrator
28 days from the first day the Chairman of the meeting reports the result to the Court
File report within 4 business days
Notice of decision to be provided immediately
No extension

8. The challenge (continued)
Prejudice:
Revoke/suspend any decision approving the CVA
Directions for further meetings to consider revised proposal
 Material irregularity:
Revoke /suspend the decision taken at the meeting
Directions on further meeting to consider the original proposal

9. The challenge (continued) cases
Prudential Assurance Co Ltd PRG Powerhouse 2007
Only landlord category affected where tenant guarantees in place from Powerhouse’s parent
£0.28p in CVA and £0.00p in liquidation
CVA did not operate to release parent from liability under the guarantee
Landlord category not take steps to enforce guarantee
Unfairly prejudicial because:
Differential treatment of creditors
No single/universal test for unfairness
Worse off in CVA
Guarantee had value
Suffer least on liquidation but took all the pain in CVA

10. The challenge (continued) cases
Mourant & Co Trustees Ltd v Sixty UK Limited 2010
Vertical comparison – landlords will have had recourse to valuable guarantee rights
Horizontal comparison – compromise imposed on rights/claims of 4 closed stores

11. THE cva – ONGOING ISSUES
Where are we now:
No single and universal test for judging fairness.
Different treatment of creditors is relevant but not of itself sufficient to establish unfair prejudice.
Degree of commercial necessity or desirability.
Facts based challenge possible – costly and forensic based.

12. House of fraser cva Background Conditional offer of equity
Re-gearing of rents
Sale and leaseback programme
Amending note programme
Proposal
Close 39 stores
Re-gear others

13. Grounds of challenge Only landlords bearing pain
Sale and leaseback nature of the portfolio
Valuation of CVA debts

14. What happened/what would have happened?
Settlement
Confidential
Reports - £200k, only £20k received
Landlords were put in a different class
What if it went to court and was won?
The use of CVA's to dispose of unprofitable sites would have been harder to achieve
There would have been more careful consideration of voting procedures

15. Schemes of arrangement
Challenges
Class
Fairness
Trend?
Possibly for bigger companies, we will see the combination of schemes and CVAs
Greater opportunity for creditor challenge

16. Landlord’s responses Greater challenge Grouping together
Looking to negotiate better positions in the CVA
British Property Federation – looking to maximise landlord’s position

17. Other Tenant’s positions
Unfairness issue of one tenant paying more rent than their neighbour who has gone through a CVA
Next – revised rental clauses – reduce to CVA levels
Valuation issues
Finance issues
Likely to increase rents?