CVAs and the Powerhouse case

Landlords have hailed the High Court decision in the Powerhouse case a huge win for them that protects asset values.  Sure, these particular landlords managed to prove to the court that this particular CVA was ‘unfairly prejudicial to them, but there is no reason for suggesting that it sets a precedent which prevents landlords being bound by CVAs.  What many commentators are claiming cannot be any further from the truth.  The headlines are totally misleading.

Let’s look at the principles in the decision both as regards what the judges said and what they did not say, that way we will get a much better understanding of its impact on landlords.

Firstly, landlords although they would very much like to, do not enjoy a ‘super creditor status’. Their debts can be compromised in a CVA like any other creditor.

Secondly, but the CVA must not be unfairly prejudicial to them or the CVA will be upset.

Some commentators have decided that just because the judges found on the side of the landlords, CVAs which attempt to compromise landlords’ claims are unlikely to succeed.  This is patently not so, all that Insolvency Practitioners have to do is be an awful lot more careful about the structure and drafting of the CVA in order to make a CVA binding on a landlord.   So the lesson to IPs is ‘take more care  and CVAs will work’.

Remember, even though they would like to be, landlords are not exempt from the UK’s business rescue culture!

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