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Landlord’s challenge of a CVA successful at High Court


London landlord, Peabody, has successfully challenged a company voluntary arrangement (CVA) of one of its contractors.

The High Court has ruled to overturn a CVA following a near year-long dispute, after Mizen Design/Build Limited (MDB) entered into a CVA in May last year.

What is a CVA?

A CVA is a form of insolvency process typically used to restructure companies, such as building contractors, to reduce or rearrange its liabilities (debts) over a period of time. A CVA is proposed by the company to its creditors and shareholders who must then decide whether to vote in favour of the proposal at the creditors meeting.

In this case, the CVA was proposed by MDB on the basis that it would offer a better result for unsecured creditors than the alternative of administration. However, by entering the CVA, this jeopardised certain creditors’ ability to claim against both MDB and its parent (Mizen Properties Limited) under parent company guarantees held by the creditors. For Peadbody, the terms of the CVA would only allow them to recover 7.5% of the money owed by the parent guarantor.

In recent years, landlords, like Peabody, have sought to challenge CVAs on the basis that they have been unfairly prejudiced by the CVA’s terms*. Until now, challenges have usually been unsuccessful.

The Insolvency Court

The Insolvency Court ruled in favour of Peabody on the basis that MDB failed to provide sufficient information regarding the affairs of its parent company (including financial accounts) so that the creditors could make a reasonable judgment whether or not to vote for the CVA. The court also found that Peabody, amongst other creditors, were unfairly prejudiced by the CVA.

Appeal to the High Court

The decision was subsequently appealed by MDB but dismissed at the High Court. A month later, the High Court issued an order stating that the CVA should be revoked.

It held that:

  • even though there were no direct disclosure obligations on the parent guarantor (as it was MDB’s CVA), insufficient information was provided to the guarantee creditors in terms of their position in relation to the guarantor, and the “failure to advert at all to potential challenges to antecedent transactions” in the guarantor’s estimated outcome statement constituted a material irregularity; and
  • Peabody was unfairly prejudiced on the basis that it was part of a “class” of guarantee creditors, whose votes had been “swamped” by the votes of creditors who would receive payment in full. The argument put forward by MDB – that the differential treatment was justified to prevent “ricochet claims” – was rejected.

The ruling allowed Peabody and the guarantee creditors to claim against the parent company for money owed and MDB was subsequently put into administration.


The ruling represents a landmark decision for insolvency in the construction industry and both developers and contractors should be mindful of this case, particularly in the current economic climate.

Contractors seeking to pursue the CVA route will need to ensure that they are transparent in terms of the information relating to the CVA, including financial matters regarding its guarantors.

When faced with a CVA proposal which compromises guarantee liabilities, developers should make sure that they fully understand the arrangements which are being proposed and are satisfied that they can reach an informed decision based on the information regarding the guarantors. If it is believed that the CVA proposal is insufficient, developers are encouraged to request additional information before making any decision at the creditors meeting.

This case highlights that where a CVA provides for differential treatment of “unimpaired” creditors (i.e. those being paid in full), the court may find that the CVA is unfairly prejudicial even if such differential treatment can be objectively justified as offering a better alternative than other routes such as administration.

*See Lazari Properties 2 Ltd & others v New Look Retailers Ltd & others and Re Regis UK Limited [2021] EWHC 1294 (Ch)

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