Landlords given permission to appeal Court's decision in Debenhams CVA challenge

United Kingdom

Last September we reported on the Court’s decision on the landlords’ challenge to the Debenhams CVA on grounds of unfair prejudice and material irregularity, in respect of which the landlords have now successfully obtained permission to appeal on various grounds (see below).

The landlords also made an application under the Insolvency Rules  to review, vary or rescind the Court’s declaration that the CVA was valid following the decision of the court in Instant Cash Loans Limited in October 2019 (see our report on this case here) that a company cannot compel a landlord to accept a surrender of a lease pursuant to a company scheme of arrangement (which is analogous to a CVA). This point (in the context of CVAs) had been taken by the landlords in the Debenhams CVA challenge but was dropped as part of the decision-making process in view of the expedited trial. This application failed. Norris J confirmed that the material principles to exercise of the power to review, vary or rescind should be confined to cases in which there has been some change in circumstances; in this case, he held the decision in Instant Cash Loans was not a sufficient change of circumstance and the surrender point had been identified by the landlords but not pursued (for valid reasons). Further, the Rules are not intended to give parties a second bite of the cherry.

However, the landlords were successful in their application for permission to appeal the Court’s decision on the following points:

  • that a landlord is a creditor in respect of future rent;
  • that a company tenant can retain possession of premises at less than the contractual rent;
  • that Debenhams satisfied the vertical comparator test (i.e. is a creditor in a worse position than on an administration or liquidation of the company) and that the test must have regard to the landlord’s contingent liability for business rates; and
  • that the unenforceable provisions of the CVA purporting to vary the landlords’ right to forfeit could be severed from the CVA.

Debenhams also successfully obtained permission to cross-appeal on the Court’s decision that a CVA cannot deprive a landlord of a right to forfeit.

The outcome of this appeal will be of utmost importance to the real estate sector following the trend for “landlord-only” CVAs in recent years. Watch this space.