CVAs can compromise landlords’ claims for future rent (Discovery (Northampton) Ltd and others v Debenhams Retail Ltd and others)

In a resounding victory, and what will no doubt become the leading case on CVAs, this seminal judgment confirms that a CVA can compromise landlords’ claims for future rent, upholding the CVA as valid and enforceable—subject to the removal of provisions waiving landlords’ right to forfeiture. It offers welcome recognition that companies have legitimate reasons for the differential treatment of landlords and other unsecured creditors, such as suppliers. 

 

The first test case in the current wave of CVAs, this judgment provides major comfort to companies in financial distress with burdensome leasehold estates that a CVA remains a potential route to restructure and compromise their rent obligations.

 

Debenhams, one of the largest UK retailers, was acquired by a creditor-owned SPV via pre-pack administration in April 2019. Shortly thereafter, it proposed a CVA, which was approved by creditors in May 2019, by approximately 95% by value of creditors voting. Debenhams’ CVA compromises rent payable to landlords—across six different categories—and business rates. The CVA was challenged by a group of six related landlords—the challenge was funded by Sports Direct, a former major shareholder of Debenhams. The challenge was brought on five grounds.

 

For those less familiar—a CVA may be challenged on the grounds that it unfairly prejudices the interests of a creditor (among others) or that there has been