Last month Mourant, the owner of Metquarter shopping centre in Liverpool, won a case at the High Court against fashion brand Miss Sixty over a Company Voluntary Arrangement (CVA) entered into by the clothing brand’s owners, Sixty SPA.

The CVA meant that Mourant, which leased a unit to Miss Sixty at Metquarter, lost its rental guarantee for just £300,000, forcing Mr Justice Henderson to criticise the conduct of Sixty UK’s joint administrators Peter Hollis and Nicholas O’Reilly.

The judge ruled that the administrators had unfairly sided with the retailer. This is particularly significant because Nicholas O’Reilly is the former president of R3, the trade body for insolvency practitioners, which is meant to promote high standards.

Summing up, Mr Justice Henderson announced: “Unfortunately, the administrators in the present case seem to have lost a proper sense of objectivity, and they allowed themselves to side with Sixty Group against the interests of the guaranteed landlords of the closed stores. They permitted Sixty SPA to dictate the crucial terms of the CVA, and they misrepresented the true position to the creditors.”

Liz Peace, chief executive of the British Property Federation welcomed the decision, saying: “This is of huge significance because it shows that immoral acts designed to let directors manage retailers into the ground, blame the landlord and walk away will not be tolerated by the courts. Common sense has won out and this will hopefully make future cases of firms cynically using insolvency laws less likely.”

Ian Fletcher, director of policy at the BPF, added: “It is extremely disappointing that landlords are seen as such soft targets and have to go to such hassle and expense to defend their interests in court.

“Such a damning judgment can only further erode confidence in the insolvency practitioner sector’s ability to self-regulate itself. Over the course of the recession landlords have shown a willingness to support legitimate rescues and what a pity they will be more suspicious in future because of cases like this.”

Davies Arnold Cooper partner, Caroline Howard, led the case for Mourant. She said: “We are very pleased to have won the case. My clients were somewhat nerve-wracked what with all the costs involved so it was nice to be vindicated. The insolvency practitioners behaved outrageously and it was good that that was recognised by the courts. The judge gave us indemnity costs which really showed how strongly he felt because you don’t often get that.”

She thinks that a lot of insolvency practitioners are also pleased about the decision because they feel that there are rogue traders out there and tenants are being “led up the garden path.”

The ruling follows the Powerhouse case in 2007 in which the electrical retailer’s parent PRG Group was told that its CVA to escape the lease liabilities was “unfairly prejudicial” to landlords. According to Caroline Howard, the Powerhouse case, itself viewed as a landmark, has been outdone by this latest ruling. Both high-profile cases now mean that it is unlikely that any CVAs of a similar nature will go ahead in future.

As she explained: “The judge was so damning about the insolvency practitioners and that’s one thing that has got everybody talking. The judge felt they had completely lost their sense of fairness. They just did what the parent company [Sixty SPA] told them to do. There will now only be limited circumstances in which the use of a CVA could make a landlord give up their rights in exchange for a third party guarantee.”

She continued: “I don’t think CVAs of this nature will go ahead in future. Sixty used every trick in the book to delay the case and string it out and I hope people won’t have to go through that. CVAs are a good way of managing debt but there must be better ways of writing them so that companies are kept alive and creditors aren’t pitched against each other.”

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