The High Court has dismissed a challenge brought against a company voluntary arrangement (CVA) for salon and beauty chain Regis. After its earlier judgment in the CVA challenge brought against fashion retailer New Look, the court once again foiled corporate landlord efforts to create a negative precedent to inhibit the use of retail company voluntary arrangements or CVAs.

In this article, Alice Glendenning examines the decision in the case of Re Regis UK Limited [2021] EWHC 1294 (“Re Regis”).

In Re Regis, Mr Justice Zacaroli rejected every ground of challenge to the CVA, except for an argument raised around the unjustified preferential treatment of one creditor under the terms of the CVA proposal.

Background

The directors of Regis UK Ltd proposed a CVA between the company, its creditors and shareholder in October 2018. Landlords of various properties from which the company operated raised a challenge against the CVA in November 2018 on the basis of unfair prejudice and material irregularity: the two lines of attack available to a creditor unhappy about a CVA. In October 2019, administrators were appointed to the company, triggering the automatic termination of the CVA. In spite of the termination, the applicants continued to seek a retrospective revocation of the CVA to pursue the repayment of fees from the nominees, who had subsequently become the joint supervisors of the CVA.

The judgment

The court found one incident of unfair prejudice under the CVA, namely, the designation of a creditor as critical to the ongoing trading of the company, and accordingly to be paid in full, had been unfairly prejudicial as it was not objectively justified and the nominee had not questioned the designation. Those were matters any reasonable nominee should have taken into consideration; the court did not accept lack of time, resources or powers as a justification for not having done so.

While noting the lack of practical utility of a challenge to a terminated CVA, the court was prepared to revoke the CVA since it was relevant to the question of costs. It was also a possible gateway to an order that the nominees and subsequent supervisors repay their fees. The court noted that no order requiring a nominee or supervisor to repay their fees had been exercised in any prior case. It concluded that it would not be appropriate in the absence of fraud or bad faith where the conduct in question had not rendered the services valueless. Accordingly, it was held that it was not appropriate to make such an order.

All other grounds of the challenge were dismissed:

• The company’s non-disclosure in the CVA proposal of certain possible antecedent transactions entered into by it was not a material irregularity as the facts available to the nominees gave rise to the likelihood of a strong defence. Had creditors received the information alleged, it was unlikely they would have assessed the CVA any differently.
• There were no material irregularities in the Statement of Affairs and Estimated Outcome Statement. On account of the lack of practical utility of the challenge, the court declined to make any findings in relation to the validity of the debts in question. However, it considered it was reasonable for a shut-down administration to have been identified as the most likely alternative if the CVA was not approved at the time.
• The application of a blanket 75% discount to landlords’ claims in respect of future rent for voting purposes was not a material irregularity. As in New Look, even if there was an irregularity in applying the 75% discount, it was not material as there was no impact on the meeting.
• The numerous modifications made to the lease terms under the proposal were not unfairly prejudicial. The landlords had had the option to terminate their lease or bind themselves to the modifications; these options provided a better outcome than a shut-down administration would have as the realistic alternative to the CVA.

Comment

The applicants’ limited success in the revocation of the CVA is outweighed by the court’s dismissal of all other grounds of challenge and refusal to grant further relief. In substance, Re Regis marks the second in a trio of unsuccessful landlord challenges to CVAs in 2021. This year may bring a further round of challenges, noting that the applicants in New Look have been granted permission to appeal. In the meantime, this decision reassures retailers of the continued use of CVAs as a flexible restructuring tool and provides some clarity on their practical application.

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