Undertones Point Toward What We Might Expect From The Upcoming New Look CVA Challenge, Which Has Had The Benefit Of More Recent And Considered Legal Analysis

A legal challenge by landlords against a retail company voluntary arrangement (CVA) will conclude later today, with restructuring lawyers at Irwin Mitchell saying they hope we will soon have greater certainty on an area of law, for which a considered review is overdue.

Regis traded as a chain of hair salons under the brands Regis and Supercuts and went into administration in October 2019.

A year before going into administration, the company launched a CVA – a process that usually results in landlord rent cuts.

In late 2019, landlords issued a challenge against the supervisors of the CVA under section 6 of the Insolvency Act 1986.

Despite Regis entering into administration and the CVA being terminated, some of the landlords have continued to pursue the CVA challenge against the nominees.

Regis, viewed by many as a test case, is being heard in the High Court by Mr Justice Zacaroli, one of four leading judges considering the arrangements that form the bases of CVAs, schemes and restructuring plans.

The hearing will conclude today and judgment will be handed down after another high profile CVA challenge involving high street fashion retailer New Look is heard from the 17 March.

The Regis landlords are arguing in particular that inadequate disclosure was made in relation to a number of transactions. More fundamental legal arguments had been raised but were not formally pleaded and two late amendments have been declined. Mr Justice Zacaroli will have the opportunity to consider:

- matters of jurisdiction (do what amounts in essence to a series of linked arrangements fall outside of the section 1 Insolvency Act CVA jurisdiction?) and

- unfair prejudice (is it unfairly prejudicial to allow non-compromised creditor votes to be determinative?)

Lawyers at Irwin Mitchell have been following the hearing closely and say that the judge’s interest in exploring these issues has been evident throughout the course of the Regis hearing and extensive reference has been made to New Look, where he will be able to consider them.

Doug Robertson, an Insolvency & Restructuring partner at Irwin Mitchell, said:

“We are not surprised to see these fundamental topics finally coming formally before the court, particularly as the balance between what progress should be allowed to adapt to changing economic and commercial needs, and selecting a suitable process containing proper safeguards is a difficult one. We look with anticipation to Mr Justice Zacaroli’s determination on these important questions.

“A decision in favour of the New Look landlords in particular may curtail the creep whereby CVAs have been used to impose increasingly onerous terms on a subset of creditors, in practice almost exclusively retail landlords.”