Property litigation weekly update — 28 May 2021


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In this week's bulletin we look at the easing of eviction restrictions, a new boundary dispute mediation service, and the revocation of the Regis CVA ordered on the basis of unfair prejudice to landlord creditors. All this along with the usual insights from the firm and some positive news

Residential L&T – easing of eviction restrictions

An announcement made by the Government on 12 May 2021 has confirmed that the ban on evictions will end on 31 May 2021.

The evictions ban was initially introduced to provide greater protection for tenants unable to pay their rent during the coronavirus pandemic. It was an emergency measure intended to have short term application, and has been extended several times.

The lifting of the evictions ban from 1 June 2021 will mean that bailiffs can proceed with evictions, unless someone in the property has coronavirus symptoms or is self-isolating.

Also from 1 June 2021, it will no longer be necessary for landlords to give 6 months notice in the vast majority of cases before issuing possession proceedings. Save in cases involving anti-social behaviour or domestic abuse etc where reduced notice periods apply, landlords will be required to give 4 months' notice.

The government's aim is to continue to offer some support to tenants whilst the national coronavirus restrictions continue to be eased. Whilst notice periods may be reduced further, a full return to the pre-pandemic position is not envisaged until at least 1 October 2021 as the government seeks to balance the need to protect tenants against the need to provide access to justice for landlords.

It is anticipated that there will be many eviction warrants waiting to be enforced once the ban is lifted and, whilst the Courts will understandably prioritise the most serious cases, there has been no confirmation as to how the backlog will be tackled. In the meantime the prescribed forms of wording for giving notice under sections 8 and 21 of the Housing Act 1988 will be amended to reflect the latest changes, and landlords should ensure they use the correct version.
 
Boundary dispute mediation service

The Property Litigation Association (PLA) has teamed up with the Royal Institution of Chartered Surveyors (RICS) to launch a mediation service aimed at resolving neighbour and boundary disputes.

The service aims to allow parties to retain control of the negotiation process and break some of the deadlock that can typically be associated with disputes of this kind.

Jacqui Joyce, who was central to the service being created said: "People at the heart of neighbour disputes can rapidly get themselves into a fight, but few know how to then get out of it. Mediation gives people an opportunity to exit the fight without the courts being involved, avoiding the stress, risk and huge expense that this may entail".

The service aims to be cost effective. An initial fee of £240 inclusive of VAT will be payable to RICS to allow a mediator to be nominated. The mediator, who will be independent and will have a background as either a lawyer or chartered surveyor, will then charge £2,100 (inclusive of VAT) per party for an 8 hour mediation session. Additional hours can be agreed.

More information on the service can be found on the Boundary Disputes Mediation Service page on the RICS' website, available here.

Revocation of the Regis CVA ordered on the basis of unfair prejudice to landlord creditors: Carraway Guildford (Nominee A) Ltd and others v Regis UK Ltd and others [2021] EWHC 1294 (Ch)

On 17 May 2021, Mr Justice Zacaroli handed down judgment in the landlords' challenge of the Regis CVA (which follows hot on the heels of the recent high profile landlord challenge of the New Look CVA heard before the High Court). Whilst ruling against landlords seeking the repayment of fees against the nominees of the Regis CVA, the High Court revoked the CVA on the basis that it unfairly prejudiced landlord creditors in leaving the shareholder unimpaired.

Background

In October 2018, the directors of Regis UK Ltd (Regis) issued a CVA proposal between Regus, its creditors and its sole member, International Beauty Limited (IBL), which sought principally to reduce rent payable under Regis' various leases. The CVA proposal was approved and a number of Regis' landlords issued a challenge, seeking a court order revoking the CVA on the grounds of unfair prejudice and material irregularity. The landlords' challenge was eventually heard in March 2021, notwithstanding the CVA having already terminated as a result of Regis entering into administration in 2019.

The landlords' challenge and the court's decision – key issues:

  • Material irregularity

i. Inadequate disclosure –

The Judge did not consider there to be a material irregularity arising from a failure to provide more extensive disclosure to creditors, commenting that if there had been more extensive disclosure of the nature of antecedent transactions etc, he did not think that there would be a substantial chance that creditors would have voted differently (namely against the CVA). The Judge considered the required standard of disclosure in a CVA proposal by reference to the New Look CVA judgment, commenting that non-disclosure will constitute a material irregularity only if there is a substantial chance that the non-disclosed material would have made a difference to the way in which creditors voted.

ii. Inaccurate Statement of Affairs and estimated outcome statement –

The court rejected the landlords' grounds for challenge in all respects, and held that it was reasonable in the circumstances at the time to identify a 'shut-down' administration as the likely alternative to a CVA.

  • Unfair prejudice

i. Treatment of IBL as unimpaired (and critical) creditor –

The court held IBL's categorisation in particular as a critical creditor was not justified, and had an immediate and significant impact on other CVA creditors because the IBL debt was due and payable and would be paid in full from Regis' assets in the CVA. In contrast, the amount funded from Regis' assets to pay allowed CVA claims was only £330,000. The court commented that the preferential treatment IBL received under the CVA was unfairly prejudicial to those creditors whose debts were impaired, including the landlords who brought the application challenging the Regis CVA. The IBL debt was wholly unimpaired by the CVA, whereas landlords in categories 2-5, along with all other non-critical creditors, were entitled to receive a dividend of only 7% on their claims.

ii. Discounting of landlords' claims by 75% for voting purposes –

The Judge held the 75% discount was not justified. He drew reference to the New Look CVA decision, noting in that case he concluded a discount of 25% where the claim of each landlord had been estimated by reference to the circumstances of the particular lease, was justified on the basis that it was a reasonable method of estimating a minimum value. Even if there was an irregularity, it was not material because it had no impact on the outcome at the meeting, since any adjustment to the claims of landlords who voted against the CVA was balanced by the same adjustment to the claims of landlords who had voted in favour. The Judge commented in this case that, even if there was an irregularity in applying a 75% discount, it was not material as it similarly had no impact on the outcome of the meeting; but he said the 75% discount was much larger than the New Look CVA discount and could not be justified in the circumstances of the case.

  • Nominees' breach of duty in promoting the CVA

i. Whether the nominees were in breach of duty in:

a. Their contention in their report that there was no manifest unfairness;

b. Opining that the proposal should be put to a meeting of Regis' creditors;

c. Failing to provide adequate information about antecedent transactions;

d. Failing to consider whether a trading administration or pre-packaged sale were the most realistic CVA alternatives.

ii. And if the nominees were in breach, whether the court should order the nominees to repay to Regis their fees and remuneration.

The Judge found in one limited respect that one of the nominees' conduct had fallen below the required standard, and commented that a reasonable nominee ought to have taken IBL's treatment as a critical creditor into consideration before accepting without question that the shareholder was properly to be treated as such. He did not however conclude that this was an appropriate case to deprive the nominees of their fees.

Comment

Whilst the decision in this case, and in the earlier New Look CVA challenge, are clearly unwelcome to landlords, they do signal that the courts are prepared to scrutinise the process and structure of these arrangements and that the outcome of a challenge is by no means a foregone conclusion. This creates very real risk for tenants considering these measures. That fact, together with the time it takes for a CVA challenge to be determined, means significant operational uncertainty for companies hoping to rely upon such an arrangement after its initial approval by creditors.

With permission to appeal having recently been granted for the New Look CVA decision, there may also be more to come on this front. In the meantime, we may see the battleground for large retail restructuring move from CVAs to the new Restructuring Plan process, as per the recent Virgin Active case. This is likely to be a more expensive process for tenants, but due to the Court's early involvement it may be thought to provide a greater degree of certainty of outcome at an earlier stage. Of course, even if initially approved by the Court, the position could later be overturned on appeal. There is accordingly no silver bullet for either tenants or landlords in this difficult area.
 
Insights from around the firm

Positive news

  • After an exceptionally rainy May, the sun is due to come out just in time for bank holiday weekend for some areas.
  • "Friends" reunion airs in the UK
  • Leonardo DiCaprio leads $43 million pledge to restore the Galapagos Islands
  • Oscar nominated actor, Elliot Page, receives hundred of messages of support after sharing a new milestone on social media 
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