Challenge to Debenhams CVA defeated


Various landlords (funded by Sports Direct) sought to challenge the Debenhams CVA on five grounds. 

All of the grounds of challenge failed save for one (ground 3) which found that a landlord's right of forfeiture is a proprietary right that cannot be altered by a CVA.

Norris J made a creative declaration that the relevant provisions of the CVA, which sought to prevent a landlord forfeiting, were deleted from the Debenhams CVA, which otherwise carries on unaffected.

One of the grounds of challenge (ground 4) was that the landlords were treated less favourably than other creditors such as suppliers without justification and therefore that the proposal was not 'fair'.  Norris J was satisfied that the differential treatment of landlords from suppliers was justified by the need for business continuity.  Interestingly, however, he did go on to say that there would have been 'unfairness' if landlords were expected to take reductions in rent to below market value.  That point is interesting as market value isn't necessarily properly (or formally) determined in some CVAs.

Overall, it would appear that the judgment hands some power and leverage back to landlords who have, to date, been unable to forfeit by reason of a CVA related event.  Even category 1 landlords, whose position is largely unaffected by a CVA, may now be able to use the CVA as a reason to exercise forfeiture and take back their property if an appropriately worded forfeiture clause was found in its lease. Whether a company would have grounds for obtaining relief from forfeiture in such circumstances is more complicated and remains to be seen looking at the facts of each individual matter.

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Andy Bates

Andy Bates

Partner, Business Support and Restructuring
Leeds, UK

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James Davison

James Davison

Partner, Business Support and Restructuring
London

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