The rejection of the CVA carried out by the owners of fashion chain Miss Sixty will pave the way for landlords to challenge the process, according to experts.
The CVA of Sixty UK, owners of the Miss Sixty and Energie chains, was branded “fatally flawed” in the High Court last Friday. Experts believe landlords could use the decision to bolster their negotiating position in future CVAs.
Mathew Ditchburn, a solicitor in law firm Hogan Lovell’s real estate disputes team, warned that the decision showed “landlords can put up a fight and win”.
Sixty UK completed a CVA in April 2009 to avoid liquidation by exiting loss-making stores.
But landlord Mourant & Co, which had two of the retailer’s stores in its Metquarter shopping centre in Liverpool, objected to the terms, which allowed Sixty UK to relinquish its Italian parent Sixty Spa’s status as guarantor, in return for £300,000. If Sixty UK had gone into liquidation, the rental guarantees would have remained, totalling about £4m.
Mr Justice Henderson quashed the CVA on the grounds of “guarantee stripping” that was “unfairly prejudicial” to Mourant.
CVAs have become popular in the recession, with retailers able to shed loss-making stores to continue trading. JJB Sports, Focus and Blacks are the three biggest retailers to undergo a CVA in the last 18 months, but the terms of their CVAs were different to Sixty UK.
Law firm Davies Arnold Cooper partner Caroline Howard, who led the case for Mourant, said: “Insolvency practitioners will have to look very carefully in future at what procedure will work.”
Sixty UK said in its latest accounts filed at Companies House that if the CVA was unsuccessful it was “likely the company would enter liquidation”. Sixty UK declined to comment.
The judge lambasted the insolvency practitioners who handled the CVA , Peter Hollis and Nicholas O’Reilly of Vantis, and has referred them to the “appropriate bodies”.
Brian Green, partner at KPMG’s restructuring arm, who has worked on CVAs including JJB and Blacks, said CVAs have to be “fair and realistic and better than the alternative [administration]”.