A company voluntary arrangement (CVA) which aimed to remove creditors’ rights under guarantee against a parent company has been deemed invalid by the High Court.
In Prudential Assurance Co Ltd & others v PRG Powerhouse Ltd Mr Justice Etherton held that the CVA Powerhouse had used to escape its UK leases at a fraction of the cost was unfairly prejudicial to the landlords.
He said: “The votes of those unsecured creditors who stood to lose nothing from the CVA, and everything to gain from it, inevitably swamped those of the guaranteed landlords who were significantly disadvantaged.”
Powerhouse proposed a CVA to its creditors, an aspect of which relieved its guarantors of any liability for the rent that remained unpaid and the future rent in respect of its loss-making properties until they were re-let. A sufficient percentage of the company’s other creditors were happy with the provisions of the CVA to outvote the landlords and pass it. This left Powerhouse’s landlords bound by the clause relieving the guarantors of responsibility under their guarantees and powerless to object
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