Decision hangs on PowerHouse court ruling
UK retailers could be forced to renegotiate hundreds of leases if a ruling expected in the High Court tomorrow finds against failed electricals retailer PowerHouse.

This financial structure can be triggered when a company is technically insolvent, allowing it to seek agreement from three quarters of its creditors for full or partial repayment in exchange for allowing it to continue trading under its present directors.

The case has been brought by two groups of the country's largest landlords, which are concerned that PowerHouse's parent company Pacific Retail has been able to avoid liability for its subsidiary's outstanding rent by using a company voluntary agreement (CVA).

If 75 per cent of creditors agree to the terms offered in the CVA, it effectively exempts the parent company from responsibility for its debts.

The first group of landlords involved in the High Court challenge to PowerHouse's use of a CVA are Prudential, Land Securities, Derwent London, Scottish Widows, Hammerson and Legal & General. The second is made up of British Land, Dresdner Kleinwort and Lloyds TSB.

Property consultancy Donaldsons estimated that up to£38 billion of property assets could be affected by a ruling in favour of PowerHouse, because landlords would no longer be comfortable with the one in 10 leases that are guaranteed by a parent company.

New Zealand-based Pacific Retail bought PowerHouse in 2003 and closed 35 of its loss-making stores in February last year.