Landlord wins right to challenge Nero coffee chain CVA

A landlord has won the legal right to challenge a company voluntary arrangement (CVA) proposed by the Nero coffee shop group.

Stephanie Johnson Senior Associate Solicitor reports on this recent case.

Nero, which has over 800 shops in the UK, was severely affected by the Covid-19 pandemic and had fallen into rent arrears at its shops. Mr Young was the landlord of one of the shops, the rent from which was a main source of his income.

In November 2020, Nero proposed a CVA that would compromise the terms of the shop leases. It stated that the alternative would be insolvent administration under which the landlords would receive next to nothing.

Under the CVA, the rent arrears due to Young would be reduced to 30% of the outstanding total, meaning he would receive £11,360 of £37,867, and the future rent would be reduced by being based on a percentage of the shop’s turnover.

The creditors’ deadline for voting on the CVA was 30 November. Young was not particularly happy with the terms but voted in support around 26 November.

On 29 November, a third party offered to buy out the Nero group, refinance its debt and repay in full all the company’s rent arrears. It requested that the vote be postponed to allow the creditors to consider the offer.

Nero refused the offer and declined to postpone the vote. It informed the creditors of the offer on 30 November, but around two-thirds of them had already voted. The CVA was approved, and Young began challenge proceedings.

He asserted that the CVA was unfairly prejudicial to the landlords and that the approval decision should be revoked or suspended, or a revised CVA should be considered.

The third party entered into an agreement with Young to fund his challenge and pay him £100,000 in return for him undertaking not to accept any settlement offer from Nero or withdraw the challenge without the third party’s consent.

Nero applied to have the challenge dismissed on the grounds that it was being pursued for a collateral and illegitimate purpose in that the third party was controlling Young to further its takeover bid.

The court refused Nero’s application. It held that it was not appropriate to strike out Young’s challenge or grant summary judgment in favour of Nero based on the collateral purpose argument. The court had to accept that there were substantive grounds for Young’s challenge and that his reasons for pursuing it were truthful.

The fact that the challenge was being funded by a third party that had its own reasons for doing so did not detract from Young’s purposes, which were to achieve a better deal for himself and, he considered, for all the creditors.

They should at least have the opportunity of considering an alternative to the company’s proposed CVA.

If you would more information about the issues raised in this article or any aspect of company voluntary arrangements please contact Stephanie on 01228 516666 or click here to send her an email.