Drafting CVAs—it’s all about the fine print

Drafting CVAs—it’s all about the fine print

In what circumstances can a creditor's claim fall outside the terms of a company voluntary arrangement (CVA)? James Morgan and Matthew Weaver, barristers at St Philips Chambers, consider the judgment in Oakrock Ltd v Travelodge Hotels Ltd and offer some practical advice on the drafting of a CVA.

Original news

Oakrock Ltd v Travelodge Hotels Ltd and others [2015] EWHC 30 (TCC), [2015] All ER (D) 119 (Jan)

The claimant, Oakrock, agreed to grant a lease of a hotel to the first defendant, Travelodge, on the understanding that Travelodge would carry out refurbishment work at the hotel. The Travelodge Group later entered into a CVA, under which the rent for the hotel was reduced. Oakrock brought proceedings against Travelodge and the other defendants claiming, among other things, that the work had not been fully or properly carried out and seeking damages for loss of rent following the making of the CVA. Travelodge sought summary judgment against Oakrock. The Technology and Construction Court dismissed Travelodge's application for summary judgment on the whole claim, but held that claims which were excluded by the terms of the CVA would be struck out.

What was the background to the summary judgment application?

Oakrock and Travelodge entered into a business sale agreement in November 2007 (the agreement). In short, the agreement provided for Oakrock to grant Travelodge a 35-year lease of its hotel and for Travelodge to undertake refurbishment works. Oakrock was to fund the refurbishment up to a maximum of £1.8m in return for which the rent payable by Travelodge would be increased by £7,000 for every £100,000 thereby spent by Oakrock.

In September 2012, Travelodge's creditors approved a CVA. The CVA divided all Travelodge's hotels into five categories. Category 1 hotels were to pay rent as before, category 2 hotels were to have their rent reduced to 75%. The hotel in question was in category 2.

Oakrock claimed that the refurbishments had not been fully or properly carried out. It put its claim for loss in different

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.