Can a CVA work to release guarantor obligations? ask Joseph Ollech and Helen Bourne
PRG Ltd (PRG) owned a UK subsidiary called PRG Powerhouse Ltd (Powerhouse). Powerhouse acquired more than 100 high street stores and supermarkets in the UK. A number of landlords of these stores took parent company guarantees from PRG in respect of Powerhouse’s obligations under the leases. Powerhouse subsequently decided to close 35 of the stores.
The directors of Powerhouse proposed a company voluntary arrangement (CVA) in relation to creditors who were connected to the 35 stores under which the “closed premises creditors” would be given 28p in the pound. All other creditors of Powerhouse would be unaffected.
The CVA purported to release PRG from all its guarantor obligations to the landlords. The landlords challenged the effectiveness of the CVA to release the parent company from liability in respect of its guarantees to the landlords.
The application arose under the Insolvency Act 1986 (IA 1986), s 6(1) which states that an application can be made to the court on the grounds that a
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