Landlords file Regis CVA legal challenge

A group of UK landlords, including Hammerson and British Land, have filed a legal challenge against hairdressing chain Regis, which contests its company voluntary arrangement. The cohort, which also includes M&G and Aberdeen Standard, filed documents with the High Court that argue the provisions of the Regis CVA were “substantively unfair” for reasons including changes to lease terms. The landlords also alleged that “questionable transactions” occurred around the time Regis Corporation sold the UK arm in October 2017 to private equity firm Regent LP. They claimed that another Regis Corporation entity bought a series of trademarks, including “Supercuts”, for £1. As such, the group alleges that Regis had disposed of valuable property to other companies within the wider group for “purely nominal consideration”. Regis UK has said the applicant landlords own only 19 of its 223 salons. A spokesperson for the company said it “fundamentally disagrees with the applicants’ position, and the application will be robustly defended accordingly”. The firm said: “The company is working closely with its legal team to oppose the challenge and safeguard the cost base restructure, which will help protect jobs and drive future growth of the business.” A spokesperson for British Land said: “CVAs are designed to create emergency breathing space for a struggling company to become viable. “Where a CVA is used for this purpose, we are fully supportive. The Regis CVA causes several concerns including clauses irrelevant to the purpose of a CVA. “In addition, a series of transactions were undertaken prior to the CVA that may have extracted significant value from the company. According to the CVA proposal itself, the company was in serious financial difficulty at the time. “The company failed to provide complete information about these transactions to creditors who had entered into legal contracts in good faith, preventing them from making an informed decision about the CVA. No further comment will be provided on this particular CVA for the duration of the legal proceedings, which are now under way.” Mark Bourgeois, Hammerson managing director UK & Ireland, said: “The ultimate purpose of a CVA is to extend the life of a challenged business so that the management team has the time required to carry out necessary changes. We have previously supported a number of CVAs which has achieved this aim. “During the CVA process we need to see that the management team has a credible proposition to return the business to financial health to enable it to successfully trade. Anything other than this would be a misuse of the principle of the CVA, and allowing it would be unfair to other retailers who are working hard to transform their business models in an increasingly challenged retail environment.” John Duxbury, head of Retail & Leisure at M&G Real Estate, said: “There are clear signs of misuse by some companies that are using CVAs to reduce rents and exit or restructure leases for financial engineering purposes rather than out of pure necessity to rescue their businesses. “Transferring value in this way creates inequitable outcomes for creditors to the detriment of pension customers and savers on whose behalf institutional landlords invest. “If this is encouraged by insolvency practitioners and allowed as routine business, we stand to undermine the integrity of lease contracts, erode confidence in the real estate sector and wider economy and weaken the UK’s ability to attract overseas capital into our economy. “We will be unable to comment further on this CVA for the duration of the legal proceedings.” The industry reacts Melanie Leech, chief executive of the British Property Federation, said: “While the BPF cannot have any involvement in any particular legal challenge, more clarity and fairness is required to restore faith in the CVA process. “This case could help clarify a number of the issues that have occurred in CVAs over recent months and is therefore welcome. We continue to support a rescue culture and a CVA process that works for all parties involved, which is vital to the health of our high streets and pensioners’ savings invested in retail property. “Regardless of case law, we encourage retailers and their insolvency practitioners to engage with the BPF Insolvency Committee when thinking about a CVA proposal, which ensures property owners are better represented in the process. Yet, this engagement is voluntary and does not always mean a CVA proposal accurately reflects all property owners’ concerns.” Ed Cooke, chief executive at Revo, said: “We have grave concerns about how the CVA process is being abused by some retailers to significantly alter lease terms and ultimately close stores. It is no surprise these actions are now becoming subject to legal challenge. “The legislation was intended to provide a fair means of restructuring distressed businesses. However, in many cases companies are employing financial alchemy to justify drastic action which invariably impacts just one creditor group. “This could be the first case of its kind heard in the UK and we look forward to the courts providing much-needed clarity on how CVA legislation can be invoked and what provisions might, or might not, constitute a breach in practice. “Any precedent set will have a huge impact on the UK’s £360bn retail property sector – and the wider property investment market – as well as the future health of our high streets and town centres. “We continue to urge government to intervene as the abuse of CVAs not only carries a financial penalty for property owners – many of whom are pension funds and local authorities – but deters investment into our town centres, jeopardises the 3m UK jobs supported by the retail sector, and disadvantages responsible companies who trade fairly and successfully within existing contractual arrangements.” To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette