CVAs can compromise guaranteed landlords’ claims if IPs are careful
Guarantee-stripping - the compromise of a landlord's claim against the guarantor of a tenant debtor - also known as the Powerhouse principle, has been endorsed by the High Court as a valid legal mechanism within a CVA, as long as the compromise is not unfairly prejudicial.
In a judgement that was highly critical of Peter Hollis and Nick O'Reilly, then of Vantis PLC, who proposed a CVA as administrators of Sixty UK Limited, the "Miss Sixty" retailer, Henderson J found that a landlord could have been crammed down in this way, but was in fact unfairly prejudiced (Mourant & Co Limited Trustees and another v Sixty UK Limited (in administration) and others). The CVA was set aside.
The judgement concludes:
I am conscious, of course, that I have not heard the administrators' side of the story, because of their decision not to participate in the trial. Nevertheless, I am satisfied that there is a prima facie case of misconduct on their part which ought to be considered by the professional bodies to which they are answerable. I therefore propose to direct that copies of my judgment should be sent to the appropriate bodies by which they are licensed to act as insolvency practitioners.
Such judicial criticism of IPs occurs rarely and is sad to see, not least because of its effect on the whole profession. Speedy, clear and fair action by the regulators concerned will no doubt ensue.
Date: 25th July, 2010
Articles from this Author
1st November, 2018
Budget 2018 - HMRC preferred creditor in insolvency
23rd March, 2018
20th July, 2017
Recast European Insolvency Regulation
26th June, 2017
The Recast European Insolvency Regulation (the “Recast EIR”)
Contact a Partner
Lisa Spearman to take part in CEO Sleepout which fights homelessness and poverty. To sponsor Lisa and to read more… twitter.com/i/web/status/1…
For the latest Mercer & Hole news, visit our LinkedIn page mercer-&-hole