Both cases approved and sanctioned the companies’ arrangements, meaning, in the case of New Look, that many landlords are now looking at receiving no more than a turnover-based rent through to the expiry of their leases and, in the Virgin Plan, that several classes of landlord will receive nothing under their leases.
Clearly this is not good news for landlords as a class of creditor. They have very little voting power in a CVA and, in the wake of the Virgin judgment, they are liable to be “crammed-down” in the interests of other secured and interested parties. In both cases, the court found that the arrangements the companies were proposing were neither unfair nor prejudicial to the landlords who objected and the judgments indicate the direction of travel in such cases going forwards. For now, the rescue culture clearly trumps the interests of individual landlords. While landlords are also effectively acting as banks for struggling retail and leisure tenants, this is not good news.
We would always encourage landlords to try to get third party guarantors or substantial rent deposits at the outset of the landlord and tenant relationship, so they have options if their tenant becomes insolvent. That and keeping a close eye on tenants’ rent payment patterns, to make sure any warning signs are spotted as early as possible, are the best ways of getting ahead of the game and avoiding a New Look or Virgin Active situation.
For more information on each judgment, please download the PDFs below.