THE CVA ONGOING ISSUES JASVIR JOOTLA CLIVE CHALKLEY

THE CVA: ONGOING ISSUES JASVIR JOOTLA & CLIVE CHALKLEY

Jasvir Jootla Clive Chalkley Partner Restructuring & Insolvency Property Litigation Real Estate Group +44 20 7759 6499 +44 7715 511300 Clive. Chalkley@gowlingwlg. com +44 370 733 0617 +44 7921 881429 Jasvir. Jootla@gowlingwlg. com 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.

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

LANDLORD CHANGING ATTITUDES TO CVAS Accommodating Challenging

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.

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

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

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. 28 p in CVA and £ 0. 00 p 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

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

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.

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

GROUNDS OF CHALLENGE • Only landlords bearing pain • Sale and leaseback nature of the portfolio • Valuation of CVA debts

WHAT HAPPENED/WHAT WOULD HAVE HAPPENED? • Settlement ‒ Confidential ‒ Reports - £ 200 k, only £ 20 k 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

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

LANDLORD’S RESPONSES • Greater challenge • Grouping together • Looking to negotiate better positions in the CVA • British Property Federation – looking to maximise landlord’s position

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?

QUESTIONS?