Comment on recent retail and leisure restructurings and CVAs

Al Lomax comments on the recent court decisions involving challenges to the Virgin Active restructuring plans and the New Look and Regis CVAs, and the need for landlords and tenants to engage in early and constructive discussions about lease debt before 30 June

“The High Court rulings over the past week involving challenges to the Virgin Active restructuring plans and to the New Look and Regis CVAs are likely to prompt action by many retail and hospitality operators who will regard these as viable and urgently needed solutions to their own financial difficulties. 

“The procedures, old and new, were brought into law in the spirit of promoting corporate rescue. The courts appear to be mindful of this laudable aim and are keen to support debtor plans and proposals that meet the legal and equitable thresholds. 

“However, landlords who are assessed to be “out of the money” under these ostensibly collective procedures may feel disenfranchised by them; excluded from their formulation and the benefits of any rescue with only lip-service paid to their dissenting view and the impact on them of their tenant’s solution. They may feel that they have every reason to take enforcement action rather than stand by or facilitate a process that offers nothing for them.  

“The timing of these decisions could not be more significant. The legal moratorium on landlord enforcement action is due to end on 30 June. As UK government restrictions are lifted and doors are reopened to customers, tenant businesses who have not already paid or reached agreement with their landlords face the stark reality that they must now begin to deal with lease debt accumulated during the pandemic – estimated by the British Property Federation to be worth £7bn. 

“The UK government continues to consult on the best way to resolve the issue. However, as matters stand, there is a limited window of opportunity for debt-laden tenant businesses to reach a deal or to effect a restructuring before the moratorium ends. 

“The judgments provide much needed clarity on the legal and equitable thresholds required for restructuring plans and CVAs to be sanctioned and to avoid successful challenge. However, the ongoing conflict is not a healthy state of affairs for the parties or the wider market. Even if the moratorium is extended, it will ultimately end. Early and constructive engagement between landlords and tenants will be vital in avoiding future conflict.”

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.