BusinessBusiness RecoveryLandlords’ loss is professionals’ gain

Landlords' loss is professionals' gain

Landlords are getting the rough end of the stick as far as insolvency rules are concerned, but their problems could be a boon to business recovery professionals

Last week’s High Court judgment helped clarify one aspect of the treatment of
landlords’ claims in a company voluntary arrangement.

Landlords for East Sussex-based school Newlands had appealed against the use
of the Insolvency Act to block them from voting on whether the school could
enter into a CVA, a move the landlords would have blocked.

Acting for Kroll, Bond Pearce successfully argued that because the landlords
were unable to adequately provide the size of their claim against the school for
a sum owed, the chairman of creditors valued the sum at £1, which meant the
landlord could not vote down the CVA.

The ruling will give encouragement to other businesses in a similar
situation; that if the landlords cannot provide an accurate representation of
how much they are owed, then their right as a creditor will likely be valued at
just £1.

The impending Powerhouse court case could see even more powers removed from
the landlord, which could lead to a spate of retail administrative proceedings.

In this battle, commercial landlords are challenging Powerhouse, which
entered into a CVA and is attempting to avoid leasing liabilities on 30 closed
stores.

Although Powerhouse’s landlords accepted the arrangement, some of the UK’s
largest commercial landlords, including Prudential and Land Securities, have
taken the retailer to court in a bid to reverse the CVA over concerns that
avoiding leasing liabilities could destabilise the property industry.

‘There would be a huge increase in administrations in retail, as businesses
look to get out of onerous leases,’ believes PKF head of corporate recovery
Philip Long. ‘It would be a step change.’

But as each case deals with a certain aspect of the insolvency rules, there
are potentially more cases around the corner. ‘There are definitely some areas
where landlords and CVAs meet that are not clear,’ says Kroll partner Alastair
Beveridge.

Long has called for a clearer method for calculating the value of what is
owed to landlords. ‘It would be good if statute could be put in place from which
landlords’ claims could be quantified in a formula,’ he says.

With the Powerhouse case not heard until Autumn, that aspect of the
insolvency rules relating to landlords’ claims will not be cleared up for some
months yet.

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