Lovells and Charles Russell have advised on a closely watched High Court battle that determined the extent of landlords’ rights in company insolvencies.
Lovells advised a group of landlords which won a High Court battle last week (1 May) after they brought a claim against electrical retailer Powerhouse, alleging an insolvency procedure unfairly undermined their rights to receive rents from tenants.
The ruling, which will make it harder for parent companies to avoid paying rents on failing subsidiaries, comes after Powerhouse introduced a Company Voluntary Agreement (CVA), stating that it would not pay rent to landlords on 35 stores it had already closed.
The aim of the CVA was to prevent Powerhouse going into administration. The landlords, which included Prudential and Legal & General, received six months of reduced rent. However, Powerhouse went into administration last August and the CVA affected the landlords’ guarantee to receive a pay-out.
Restructuring partner Matthew French and litigation partner Hugh Lyons led the Lovells team. Charles Russell joint head of property litigation
Peter Levaggi led the team advising Powerhouse.
Lovells instructed
Ashurst head of litigation Michael Madden commented: “While the judgment upheld the fact that creditors can be treated differently, it confirmed that they must still be treated fairly.”
He added: “The court was reluctant to uphold the CVA because it undermined what the landlords had envisaged. The CVA deprived them of a negotiating position.”
French commented: “Where you have a guarantee from a solvent third party, a CVA cannot simply strip away those rights at the time they are most needed.”