Guarantees and company voluntary arrangements
Guarantees and company voluntary arrangements

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

  • Guarantees and company voluntary arrangements

In Powerhouse, parent company guarantees were given in respect of a number of high street stores and supermarkets in the UK. The tenant company subsequently decided to close 35 of those stores. The directors of the tenant company proposed a company voluntary arrangement (CVA) in relation to creditors who were connected to the 35 stores under which the 'closed premises creditors' would be given 28p in the pound. All other creditors of the tenant company would be unaffected.

The CVA also purported to release the parent company from all its obligations as guarantor to the landlords of the 'closed premises'. The landlords challenged the effectiveness of the CVA to release the parent company from that liability. The application was made to the court on the grounds that the CVA unfairly prejudiced their interests as creditors.

The court considered:

  1. whether on a correct construction of the CVA it could or did release the parent company guarantor from its liability, and

  2. if so, whether that outcome unfairly prejudiced the creditors

The court ruled that a CVA can refer to a third party and it can require that the creditors do not pursue a guarantee from a thi