Life after Sixty - how has the Miss Sixty case changed the role of the CVA?
Published: 15 December, 2010
The Miss Sixty case shocked the property industry into fighting unfairness in insolvency practices, but it’s not yet clear how future CVAs will be framed.
The CVA meant that Mourant, which leased a unit to Miss Sixty at the Metquarter shopping centre in Liverpool, lost its rental guarantee for just £300,000 forcing Mr Justice Henderson to accuse Sixty UK’s administrators Peter Hollis and Nicholas O’Reilly of misconduct, for unfairly siding with the retailer.
Caroline Howard, partner at Davies Arnold Cooper, who led the High Court case for Mourant & Co Trustees said: “The emphatic victory for Mourant in the courts, demonstrates that landlords can and should use the law to defend their position against a CVA that ultimately disregards their interests.”
Liz Peace, chief executive of the British Property Federation, welcomed the decision, saying: “This 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 and this will hopefully make future cases of firms cynically using insolvency laws less likely.”
According to Peace, the government is inclined to side with tenants “in almost any row” and she points out that tenants can behave just as badly as landlords.
“We’re trying to address the balance in this sort of perception that landlords are big, evil and out to get the tenants,” she said. “We’ve spent a lot of time trying readdressing the balance in the way landlords are perceived.”
Now the BPF is focusing on making the CVA process fairer and more transparent to landlords and, according to Peace, it’s all about sharing the downsides. “If claw-back provisions, giving creditors a share in a company’s profits when it returns to health, were included in CVAs then disputes such as this would arise less frequently,” she said. “Clearly, having helped an occupier through bad times, landlords should be compensated when that business makes a profit again. It should be increasingly written into CVAs that where an organisation recovers, its former creditors should share in that recovery.”
Howard added: “We are starting to see some progress such as insolvency practitioners offering ‘upsides’ for landlords with tenants who are very profitable, to offset the pain they are expected to share when tenants become insolvent and are unable to meet their rental agreements. We are seeing, for instance, IPs offering profiting sharing, or investments in other assets.”
A few months ago it was reported that PriceWaterhouseCoopers was going to be looking at an arrangement that included an upside for landlords who were disadvantaged by the initial CVA. And the BPF is working with PWC on a guide for landlords. “I think the big landlords probably do have an expert in insolvency and debt collection but there’s a lot of smaller landlords who really don’t know what they can ask for during the CVA process and don’t know how they can use the people involved in it to get the best deal for them and not just for the retailer,” said Peace.
On the government side there have been two big consultations. The Insolvency Service has been looking at ways to turn the UK insolvency system into something a bit more like the American one but the BPF is worried about such a system being abused. Luckily, the BPF believe it won’t get the political support needed to take it any further.
The OFT would like to look at regulating IPs and a complaints procedure for creditors. Peace warns that even if the government takes any of the OFT suggestions on board realistically there isn’t going to be a legislative opportunity until 2012 “by which time hopefully we’ll be coming out of the recession and all of this will be far less necessary.”
“It’s about the landlords being clear what they can get from the process,” said Peace. “Working with the responsible IPs to look at how we can make the system better ourselves and improve the information flow so landlords know how to manage the process.”
