Collapse of BHS puts CVAs under the spotlight (Re SHB Realisations Ltd; Wright and another v Prudential Assurance Company Ltd)

Collapse of BHS puts CVAs under the spotlight (Re SHB Realisations Ltd; Wright and another v Prudential Assurance Company Ltd)

Under what grounds can a company challenge its own company voluntary arrangement (CVA)? Mathew Ditchburn, partner, and Ben Willis, associate, both at Hogan Lovells, who acted for the successful landlord, consider the decision in Re SHB Realisations Ltd (formerly BHS Ltd) (in liquidation); Wright and another (as joint liquidators of SHB Realisations Ltd (formerly BHS Ltd) (in liquidation)) v Prudential Assurance Company Ltd and find it contains some helpful guidance on the operation of CVAs.

Re SHB Realisations Ltd (formerly BHS Ltd) (in liquidation); Wright and another (as joint liquidators of SHB Realisations Ltd (formerly BHS Ltd) (in liquidation)) v Prudential Assurance Company Ltd [2018] EWHC 402 (Ch), [2018] All ER (D) 58 (Mar)

What are the practical implications of this case?

This case serves as a reminder that there are limited grounds to challenge a CVA and a strict timescale within which to do so. While this provides certainty for the company and its creditors, it also means that landlords and others need to be pro-active and act quickly if they wish to challenge the validity of a CVA.

It also clarifies that administrators are liable to landlords for contingent liabilities that are attributable to their period of use of premises. This might include, for example, balancing service charge payments and back-dated rent review uplifts, which administrators are often keen to avoid.

What was the background?

BHS proposed a CVA in a bid to turn around its fortunes. The main creditors affected by the CVA were its landlords who saw rents cut by up to 75%.

Clause 25.9 of the CVA provided that, if terminated, Clause 25.9 ‘compromises and releases effected under the terms of the CVA shall be deemed never to have happened, such that all Landlords…shall have the claims against BHS Limited that they would have had if the CVA Proposal had never been approved’.

The CVA did not terminate automatically in the event of BHS’s administration, but the landlords were entitled to terminate for non-payment of sums due under the CVA.

A month after the CVA was approved,

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About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.