House of Fraser paid £1 million to landlords in an out-of-court settlement for them to drop the legal challenge to its controversial CVA.
According to Drapers, a “sweetheart” deal between the embattled department store and five landlords was reached, which saw them receive £200,000 each just days before it officially entered administration.
Landlords are understood to have received £20,000 upfront and will receive a further £180,000 when the CVA was completed.
However, since House of Fraser officially fell into administration last week, neither the deal or the planned CVA will go ahead, leaving landlords £900,000 out of pocket.
House of Fraser’s CVA, which was approved by creditors in June, included plans to close 31 of its 59 UK and Ireland stores, reduce rent on 10 that will remain open, relocate offices, and slash 6000 jobs.
Within weeks of the CVA being approved, lawyers representing the group of landlords filed a legal challenge against the retailer in Scottish courts, which was due to be heard today.
The landlords had argued that they were being unfairly prejudiced by CVA process.
When the settlement was originally made confidentially, Mark Fry of Begbies Traynor and Charlotte Coates of JLL who had been advising the group of landlords said: “Landlords are always willing to enter into a proper dialogue with companies and their advisers with the aim of rescuing a business.
“However, the retail CVA process in the UK has become increasingly misused and prejudiced against landlords and needs correcting.
“CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders.
“It remains our belief that applying a 75 per cent arbitrary discount to the value of landlords’ claims is not the market norm and has no basis in law.”
This follows news that many of House of Fraser’s brands sold via concessions including Karen Millen and Jigsaw are pulling their stock from the retailer, with wholesalers considering similar action.
It is understood that House of Fraser’s suppliers and landlords are owed more than £70 million since the retailer collapsed into administration last week, with only £600,000 being made available to unsecured creditors as part of the insolvency legislation.