Carraway Guildford (Nominee A) Ltd and 18 Others v Regis UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Zacaroli |
| Judgment Date | 17 May 2021 |
| Neutral Citation | [2021] EWHC 1294 (Ch) |
| Docket Number | Case No: 8276 of 2018 & CR-2019-BHM-000782 |
| Court | Chancery Division |
| Date | 17 May 2021 |
[2021] EWHC 1294 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
INSOLVENCY AND COMPANIES LIST (ChD)
Mr Justice Zacaroli
Case No: 8276 of 2018 & CR-2019-BHM-000782
Peter Arden QC and Ben Shaw (instructed by Hogan Lovells International LLP) for the Applicants
Matthew Weaver (instructed by Pinsent Masons LLP) for the Second and Third Respondents
Hearing dates: 3, 4, 5, 8, 9, 10 and 29 March 2021
APPROVED JUDGMENT
Introduction
This is my judgment in respect of the challenge, made by certain landlords of premises previously leased to Regis UK Limited (the “Company”), to the company voluntary arrangement (“CVA”) under Part 1 of the Insolvency Act 1986 (“ IA 1986”) in respect of the Company.
On 10 May 2021, I handed down judgment in respect of a challenge made by landlords to the CVA in respect of New Look Retailers Limited (“New Look” and the “New Look Judgment”). As I indicated in paragraph 3 of the New Look Judgment: the trial relating to the New Look CVA took place the week after the trial relating to the Company CVA; the same solicitors and counsel represented the applicant landlords in both matters; and counsel for the respondents in each matter were permitted to attend and observe the trial in the other matter. Further argument from the parties in this case was heard, following the conclusion of the New Look trial, to enable any additional points that had emerged during that trial to be ventilated.
The New Look Judgment contains a full treatment of many of the legal issues that underlie the Applicants' challenge to the CVA in this case. I do not repeat that exercise in this judgment, but will instead cross-refer to the New Look Judgment where it is relevant to do so.
Background
On 8 October 2018, the directors of the Company, issued a proposal (the “Proposal”) for a CVA between the Company and its creditors and its sole member, International Beauty Limited (“IBL”).
On 26 October 2018, meetings of the Company and of its creditors voted in favour of the Proposal, ostensibly by the requisite statutory majorities. The CVA took effect subject to the terms of section 5 IA 1986 upon the filing with the court of the report of the second and third respondents (“Mr Williams” and “Ms Laverty”, together the “Nominees”) pursuant to section 4(6) IA 1986. The Nominees became joint supervisors of the CVA.
By an Insolvency Application Notice dated 27 November 2018, certain landlords of commercial premises who are affected by the CVA (the “Applicants”) seek to challenge the CVA pursuant to section 6(1) IA 1986 (the “Application”). The Applicants allege that there was material irregularity in respect of the creditors' meeting and unfair prejudice to their interests on numerous grounds.
On 10 December 2018 the Company wrote to all creditors purporting to modify the CVA in response to certain of the objections raised in the Application (the “Modification Letter”). The validity and effect of that purported modification is a matter of dispute between the parties.
The relief sought in the Application includes: an order under section 6(4)(a) of IA 1986 revoking or suspending the CVA; an order under section 6(4)(c) of IA 1986 that a further meeting of creditors of the Company be convened to reconsider the Proposal; an order that the Nominees repay to the Company the fees and remuneration received by them (whether as nominees or supervisors); and a declaration that the modifications notified in the Modification Letter require the creditors' approval under clause 34.1 of the CVA.
The Issues raised by the Application
The agreed list of issues for trial (leaving aside issues specifically relating to relief) runs to 21 issues, falling into two broad categories.
First, numerous aspects of the CVA are said to give rise to material irregularities or unfair prejudice. These are relied on in order to seek an order revoking the CVA.
(1) Disclosure. Whether the disclosure to creditors was inadequate (such as to constitute a material irregularity) in the following respects:
(a) inadequate details were provided of certain transactions entered into by the Company in 2017 and 2018 (respectively, the “2017 Transactions” and the “2018 Transactions” and, together, the “Antecedent Transactions”), which were subject to possible challenge in the event of a liquidation or administration;
(b) The Statement of Affairs and the estimated outcome statement were inaccurate and/or incomplete because:
(i) they wrongly treated as valid debts owed to Regis Corporation (“Regis Corp”) and International Beauty Limited (“IBL”) (respectively the “Regis Corp Debt” and the “IBL Debt”), and a debenture dated 2 August 2018 in favour of Regis Corp (the “Debenture”);
(ii) they wrongly identified a shut-down administration as the realistic alternative to a CVA; and
(iii) they failed to include any value for recoveries in respect of the Antecedent Transactions.
(2) Regis Corp and IBL debts. Whether:
(a) The admission of Regis Corp and IBL to vote was a material irregularity on the grounds that neither was a creditor because the assumption of the debt to both constituted an unlawful return of capital and/or a breach of duty by the directors;
(b) The treatment of Regis Corp and IBL as Critical Creditors constituted unfair prejudice;
(3) Whether the discounting of the Landlords' claims by 75% for voting purposes constituted a material irregularity or unfair prejudice;
(4) Whether various modifications (primarily rent reductions) to the terms of the leases with the landlords whose claims were compromised by the CVA (the “Compromised Landlords”) were unfairly prejudicial, and whether that was mitigated by the grant of a new right in favour of the Landlords to terminate the Leases or the availability of a profit-share fund.
Second, in order to obtain an order that the Nominees repay their fees, it is contended that the Nominees acted in breach of duty in various respects in promoting the CVA.
(1) Whether the Nominees were in breach of duty in: (a) stating in their report that there was no manifest unfairness; (b) opining that the Proposal should be put to a meeting of the Company's creditors; (c) failing to provide adequate information in relation to the Antecedent Transactions; (d) failing to consider whether a trading administration or pre-packaged sale were the most realistic alternatives to a CVA;
(2) If the Nominees were in breach of duty, whether the Applicants are entitled to an order under section 6(6) of IA 1986 that the Nominees repay to the Company their fees and remuneration.
It is important to note what is not in issue in this case.
First, the Applicants in this case do not advance the jurisdiction challenges that were made in respect of the New Look CVA.
Second (unlike the challenge to the New Look CVA), although the Regis Corp Debt and the IBL Debt were unimpaired and, together, were material in the sense that without them the requisite majority would not have been obtained at the creditors' meeting, the Applicants do not contend that this in itself gives rise to material irregularity or unfair prejudice. Nor do they advance such a case in respect of the substantial body of other creditors whose claims were unimpaired by the CVA but whose votes nevertheless counted towards the statutory majority.
The Applicants had sought permission to amend the claim in December 2019 to contend that there was a material irregularity in Regis Corp and IBL being permitted to vote in favour of the CVA notwithstanding that their claims were unimpaired by the CVA. Permission was refused by James Morgan QC sitting as a deputy High Court Judge. After the closure of their case on the facts at trial, the Applicants sought permission to amend to plead that the same facts constituted unfair prejudice. I refused permission, principally on the grounds that there was no reasonable justification offered for such a late amendment, which would add unfairly to the burden on the Nominees' legal team mid-trial, and that it was in substance a second bite of the cherry, since it raised the same underlying matters as the failed application to amend in December 2019.
Finally, it is not contended that the differential treatment — as between different categories of landlords who are compromised by the CVA — gives rise to any material irregularity or unfair prejudice.
The practical utility of these proceedings
On 23 October 2019 Regis Corp, which had until October 2017 been the ultimate parent of the Company but in October 2019 was the holder of a qualifying floating charge, appointed Messrs Harding and Cowlishaw of Deloitte joint administrators of the Company. In order to sidestep arguments as to the validity of that appointment (for reasons I develop below), the Applicants sought and obtained an order from Mark Cawson QC sitting as a Deputy High Court Judge on 1 November 2019 appointing the same persons as joint administrators with effect from 23 October 2019.
As a result of the appointment of administrators, the CVA automatically terminated on 23 October 2019. The Company itself has played no part in the proceedings since the appointment of the Administrators. The claim continued against the Nominees. The only relief sought against the Nominees is that they should be ordered to repay their...
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