Is a High Court win enough to save Debenhams?
Debenhams’ victory in the High Court against the legal challenge brought by Combined Property Control Group (CPC) means rescue plans involving the closure of over 20 stores are to go ahead.
CPC’s legal challenge was financially supported by Mike Ashley’s Sports Direct, which dropped its own legal challenge against Debenhams’ CVA in July.
This is the latest development in the ongoing saga between the high street retailer and Mike Ashley after the CVA agreed by Debenhams’ creditors earlier this year prevented him from taking over the business if it had slipped into administration.
Although the judge required existing landlord forfeiture provisions in the CVA to be deleted, the High Court ruled that Debenhams’ CVA does not unfairly prejudice CPC, is valid and enforceable. However, will this be enough to ensure Debenhams’ survival?
Our insolvency partner, Michael Mulligan, shares his views on the decision and it doesn’t look like entirely plain sailing for Debenhams going forward:
“The cost of losing the most high-profile legal challenge to date for the CVA model could be a bitter pill for Mike Ashley to swallow.
“Challenges to CVAs based on unfair prejudice are rare in themselves and even more rarely successful. Just because the CVA is unfair to one group of creditors, it doesn’t mean that it is unfair to all of them. The Court has properly blocked Mike Ashley’s attempt to push Debenhams out of business. However, only time will tell as to whether the company can survive long term.
“Whilst it looks as though the CVA rescue model is here to stay for the time being – the Court’s decision only delays the inevitable for the ailing retailer. The CVA is a sticking plaster over a gaping wound, when really a more intensive turnaround and restructuring is needed if Debenhams is to survive.”
Want to find out more? Get in touch with Michael or any other member of the Restructuring, Recoveries & Insolvency team.