The CVA challenge: Regis and New Look consider the limits
By Claire Hammond - Practice Development Lawyer, Restructuring & Insolvency
Is it time to halt the creep on increasingly aggressive CVAs singling out a particular class and voted through by unimpaired classes? Has the evolution since the modest proposals included in the Cork Report surpassed what normal economic and commercial progress should look like (albeit noting the remarkable evolution of schemes since the mid nineteenth century)? Should more complex proposals sit more properly in a scheme/restructuring plan with fuller court oversight and, possibly more importantly, class voting? Is it right for a CVA to be able to achieve an outcome that would be vetoed on a scheme vote?
These are all questions being considered in a pair of challenges that could change the landscape that has become increasingly frustrating, particularly for retail landlords and their investors.
The CVA of hairdressing chain Regis has been challenged on the basis that substantial impairments have been sought against particular landlord creditors in the absence of adequate disclosure in the CVA proposal document and nominee report. Other points are pleaded, including challenging the discounting of various claims for voting purposes.
Whilst Regis was brought primarily to consider disclosure inadequacies, the issue of central importance to the market is whether a CVA is a suitable or permitted forum for an arrangement (which some argue is a series of arrangements undermining jurisdiction and arguably not an arrangement at all for want of “give and take”) that singles out a subset of creditors for compromise. The formulation varies according to the pleaded case. The more traditional approach of unfair prejudice is adopted in Regis (now being viewed as a test case to review CVA application) but Mr. Justice Zacaroli is engaged with the upcoming argument formulated in jurisdiction terms in New Look . The New Look CVA also involved significant rent reductions and lease term modifications, and is being challenged on a number of other terms. Late amendments to update the legal arguments in Regis were denied.
Because the underlying themes are so closely linked and the legal formulation in Regis, having been drafted some two years earlier, perhaps does not allow full analysis, judgment is to be deferred until after the New Look hearing (also to be heard by Mr. Justice Zacaroli) commencing March 17th . New Look is being run on an expedited basis due to the importance of the legal issues being considered.
Expert comment
Irwin Mitchell Restructuring & Insolvency Partner Doug Robertson comments:
“The questions being considered in Regis and, in their more considered formulation in New Look are overdue, particularly following the introduction of the restructuring plan where class voting and the sanction process are better suited to arrangements with differing effects across creditor groups. The lender community and the City generally will be watching these developments carefully.”
