Insolvency threat to UK property market

An insolvency agreement overseen by Smith & Williamson is being challenged in the High Court amid fears that the arrangement could wipe billions off the value of the UK commercial property market.

S&W corporate recovery director Tony Murphy supervised the disputed company voluntary arrangement (CVA) for electrical retailer PRG Powerhouse, entered into on 17 February. Commercial landlords are challenging the arrangement in the High Court to prevent Powerhouse avoiding leasing liabilities on 30 closed stores.

If other companies were able to discard lease obligations in a similar fashion, the property industry could see billions wiped off its portfolio value as a result, property experts claim. Although Powerhouse’s landlords have accepted the arrangement, some are now questioning the deal.

Charles Woollam, a partner at property consultants Donaldsons, said that if landlords could no longer rely on parent companies to bail out subsidiaries, it would dent investor confidence.

Law firm Lovells is representing Prudential, Land Securities, Hammerson, London Merchant Securities, BMW and Richminster Properties in a bid to revoke the CVA.

‘The applicants support Powerhouse’s attempts to restructure its business and believe that with the right proposals, the company should be saved. However, the applicants firmly believe that this CVA unfairly prejudices the interests of landlords,’ said Peter Best of Prudential.

‘Furthermore, if this CVA were valid it would have repercussions for the property sector generally in potentially undermining the value of parent company guarantees.’

The case is expected to be heard in the autumn. Smith & Williamson would not comment.