House of Fraser’s CVA is back under threat after a group of landlords filed a legal challenge on the controversial insolvency process.
The group of landlords have officially filed a petition in the Scottish courts to challenge the CVA that was approved by creditors a month ago.
The petition, understood to be the first posed against a CVA in Scotland, was filed on the grounds of alleged “unfair prejudice against certain creditors, as well as material irregularities in the implementation of the CVA”.
House of Fraser’s CVA has been one of the most contested amid the recent surge in CVAs in the retail sector.
Earlier this month it was revealed that major landlords including British Land and Derwent voted against the CVA, which is set to see 31 of the department stores 59 stores shut and rents reduced on the remaining stores.
Prior to the vote a separate group of landlords reportedly held talks with law firm Bryan Cave Leighton Paisner about a possible block of the CVA.
The law firm reportedly told landlords that had a “very strong case” on the basis that they were being treated unequally compared to other creditors – such as banks, bondholders and shareholders.
Begbies Traynor partner Mark Fry and JLL director Charlotte Coates, who are advising the landlords on the legal challenge, said: “Our group believes that certain landlords have been unfairly prejudiced during this process and that there have been alleged material irregularities in the implementation of House of Fraser’s CVA.
“Our clients have therefore taken the decision to formally file a legal challenge to the CVA today, ahead of the 24 July deadline, to protect their interests and seek to ensure that landlords are not unfairly treated in the same way in future CVAs.
“We strongly believe it to be unjust for the existing shareholders in House of Fraser to receive £70 million of value, the details of which were not communicated initially, while certain landlord creditors are shouldering the financial impact of the process.
“It is our view, and that of our legal counsel, that landlords have been disproportionately affected during this CVA process – not only compared with other creditors, but also in how they could have been treated if alternative routes to rescuing the business were fully explored.
“As a group, landlords experienced a complete lack of meaningful engagement and transparency from the outset of the House of Fraser CVA process, despite repeated requests for details on how the company is expected to trade over the next seven months under the CVA.
“To date, no information has been provided to our landlord group, with no guarantees that the business will continue, leaving landlords unable to reasonably assess the likelihood of success or otherwise of the company’s future rescue plan.
“CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders.
“They should set out a clear plan for the sustainable future of that business and the proposals should not be disproportionately detrimental to or prejudiced towards a targeted group of creditors.
“Our landlord group believes that House of Fraser and its advisers have failed on both counts.
“It is our collective view that the retail CVA process in the UK has become fundamentally flawed and needs correcting.”