Regis UK Limited CVA
Mr Justice Zacaroli issued his judgement in relation to the Regis UK Limited CVA on 17 May 2021. Much of the relevant legal analysis had already been set out by Mr Justice Zacaroli in his decision in the New Look CVA that we have previously commented on. The same counsel appeared for the opposing Landlords in the Regis CVA but a separate decision was issued, because there were some distinct points raised in Regis.
Yet again, a number of landlords considered and argued that there was material irregularity and unfair prejudice in the CVA proposal, which in the event had been voted through notwithstanding their opposition. Landlords had a particular concern about the fact that connected parties, including the beneficial shareholder of Regis UK Limited were classified in the CVA proposal as critical creditors who would receive a 100p in the pound in terms of the proposal as opposed to non-critical creditors, of which the landlords were a part, who would only receive 7p in the pound. A key issue for the court was to consider whether the shareholder was a critical creditor to whom full payment was justified for continuity of service. The Landlords also claimed breach of duty by the nominees in this regard.
The court set out helpful guidance about how nominees should approach their duties. In this case one of the nominees was found to have fallen short of the duties imposed upon him by law in one respect. The court decided that there was a breach of duty in that the nominee ought not to have recommended that a proposal be put to a meeting of creditors in circumstances where the shareholder referred to was classified as a critical creditor. Looking at the whole circumstances of the case the court decided that that step in itself was unfairly prejudicial and there was no proper evidence of it being objectively justified.
This CVA had long been terminated because of the administration of the company. It was argued for the nominees that a court should not therefore take any steps to revoke the CVA despite the unfair prejudice finding. The court, however, decided that in light of the finding of an unfair prejudice the CVA should be formally revoked. By the time of the trial the only outstanding claim against the nominees was for repayment of the remuneration they had received in connection with the CVA. While the court did not rule out ordering repayment of fees in cases of breach of duty in extreme cases, it was observed that if services had been properly performed then ordinarily it was reasonable that the professionals performing them were paid. In the circumstances the court declined to order repayment of the nominees fees.
Again this is a English decision, but one which we would expect the Scottish courts to follow. Practitioners who accept appointment as nominees will find the court’s analysis of their duties useful – and it is particularly instructive that the courts are clear that duties are engaged before the final proposal is presented. It is a timely reminder too about the importance of proper classification of creditors. Landlords, again, will be disappointed that ultimately the court declined to attack the underlying restructuring of landlord tenant liability.
BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (firstname.lastname@example.org).This briefing note is current as at 18 May 2021 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).