Up-market national retailing chain House of Fraser (HF) has settled a contentious legal dispute with a group of its landlords that challenged the company over the terms of its restructuring vehicle, known within the industry as a Company Voluntary Arrangements (CVA).
A CVA is an insolvency procedure, similar to the personal IVA (individual voluntary arrangement). It allows a company with debt problems to reach a voluntary agreement with its business creditors. However, for some time now landlords have seen this legal procure as being abused by some occupiers, using it as a means of conveniently getting themselves out of lease contracts.
In a statement issued last week and reported by CoStar Marketing Group, House of Fraser had said:
“House of Fraser is focused on concluding discussions with interested investors as per the original timelines set out by the business and recognising the risks in and around this litigation has entered into this settlement now to remove any risk to those discussions presented by this legal process.”
The group of landlords which owns stores occupied by House of Fraser throughout the UK claimed that they were “unfairly prejudiced” and that there had been alleged “material irregularities in the implementation of House of Fraser’s CVA”.
The restructuring plan proposed the closure of 31 of its 59 department stores, including its flagship Oxford Street store in London, as well as major stores in Edinburgh, Birmingham, Cardiff, with the loss of around 6,000 jobs.
The group of landlords bringing the legal challenge to the process had said that, “Although we will not have our day in court, we are pleased with the outcome and hope that our landmark legal challenge sends a clear message to any other companies considering a CVA.
The landlords claimed that they were willing to enter into negotiations with HF but that the HF CVA process “misused and prejudiced” the landlords. They said that CVAs were designed to rescue a business, “not simply a tool to shed undesirable leases for the benefit of equity shareholders.”
“…We believe that thanks to our actions, landlords in future CVAs will be in a far stronger position to challenge what we regard as unfair treatment and demand greater transparency from companies and their nominees from the outset,” said a spokesperson for the landlord group.