CVAs and 'guarantee stripping'
CVAs and 'guarantee stripping'

The following Property guidance note provides comprehensive and up to date legal information covering:

  • CVAs and 'guarantee stripping'
  • Drafting implications

Prudential Assurance v PRG Powerhouse first highlighted the potential use of a company voluntary arrangement (CVA) for 'guarantee stripping', where the beneficiary of a contractual guarantee is precluded from enforcing it. In Powerhouse, the directors proposed a CVA, which was approved at a creditors' meeting, purporting to constitute an express release by the claimants of their rights against persons other than Powerhouse. The effect, in relation to retail premises that had become surplus to requirements, was to bar enforcement by landlords of parent company guarantees.

In Powerhouse, the court stated that it had 'no doubt' that the particular CVA proposal was 'unfairly prejudicial'. The CVA left the guaranteed landlords in a worse position than without the CVA, having regard both to present and future liabilities. However, the court emphasised that there is no single and universal test for judging unfairness in the context of section 6 of the Insolvency Act 1986. It is necessary to consider all the circumstan