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House of Fraser’s company voluntary arrangement – a fighting retreat from landlords

17th August 2018

As the retail behemoth House of Fraser continued its fight for survival last week, some good news was reported that made the company and its landlords raise their heads in hope.

Following House of Fraser’s invocation of a Company Voluntary Arrangement (CVA) against a backdrop of rent reductions and the closure of a number of stores, potentially including Chichester’s own long-established outlet, the business was able to agree an out-of-court settlement with a representative group of its landlords in relation to perceived unfair use and handling of the CVA process. This opened the way for House of Fraser to continue its search for funding on a better, more attractive footing while also benefitting the landlords, who came away with some form of compensation agreement. Just days later Sports Direct owner Mike Ashley made his proposal to buy the group.

The landlords’ legal challenge concerned their perception they had been unfairly affected by the imposition of rent reductions and other measures compared with House of Fraser’s other creditors. They claimed the CVA bailout scheme was again being used to dispose of unprofitable leases for the benefit of the retail group’s equity shareholders.

The CVA process is used by ailing UK companies to avoid potentially terminal insolvency proceedings by coming to a binding agreement or compromise with their unsecured creditors. In this instance, upon agreeing a settlement in principle, the landlords dropped their legal action claiming the challenge itself was a landmark attempt at redressing the balance. But the accuracy of this assertion is dubious – after all, this was not a court ruling and, even if it had been, the decisions of the Scottish court are not binding in England and Wales. Furthermore, the details of the private deal made between House of Fraser and its landlords are not publicly known, so different parties to a future dispute would hardly be in a position to point to a detailed outcome.

However, the challenge highlighted the apparent plight of landlords who consider themselves unfairly affected by a company going into administration as well as an increasingly thawing attitude to the use of CVAs, which have traditionally been invoked as a last-resort action to help save a company but are perhaps now being viewed increasingly as a safety net for ailing businesses.

If you would like to find out more about company law and the range of business advice services offered by the George Ide team, contact us on 01243 786668 or email us at info@georgeide.co.uk.

Sam Carter. Trainee solicitor, commercial property department.

 

 

Business, Commercial Property, General, George Ide, News
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