UK: Real Estate Tip Of The Week - The Debenhams CVA Challenge

Last Updated: 2 October 2019
Article by Kevin Hawthorn, Richard Marshall and Rachael Reynolds

Judgment has very recently been handed down regarding the challenge to the Debenhams CVA, providing some long-awaited judicial guidance to certain aspects of retail CVAs.

In common with the recent trend, the Debenhams CVA sought to address what it identified as unsustainable property costs and categorised landlords by reference to the financial performance and sustainability of the rent for each property. Essentially, the lower the performance, the lower the category of the property and the greater the impact of the CVA on that landlord.

A group of landlords (whose properties fell into the lower categories) brought the challenge on five grounds which, in brief, were as follows:

  1. The CVA went beyond the jurisdiction of the Insolvency Act 1986 ("Act") in binding landlords, as they were not creditors for future rent.
  2. The rent reductions were unfairly prejudicial – if a company wishes to make use of premises let to it then it must pay the full contractual rent.
  3. The removal of the landlords' right to forfeit abrogated a property right and went beyond the jurisdiction of the Act because it was a property right as opposed to a right between debtor and creditor.
  4. It was unjustifiable to treat the landlords less favourably than other unsecured creditors.
  5. Claims that might be available to Debenhams in administration were not disclosed in the CVA – that non-disclosure being a material irregularity.

CVAs were always designed to provide a flexible mechanism by which a company could restructure its debts and liabilities. It is apparent that landlords have become increasingly concerned that the flexibility was being abused to their detriment.

The challenge to the Debenhams CVA was heard on an urgent basis by Mr Justice Norris and his decision on the five grounds is as follows:

  1. The term "creditor" must be given a wide meaning and the term "debt" extends well beyond a debt strictly so called. While future rent might not be a provable debt (a point which he did not need to determine), it is a pecuniary liability to which a company might become subject by reason of an existing obligation and was therefore a debt within the extended meaning of the term and could be captured by a CVA. The challenge on ground 1 therefore failed.
  2. The flexibility of CVAs means that rents can be reduced without this being automatically unfair and the ability, in this case, of the landlords to end their relationship with the company rendered the rent reduction fair. The court had to consider fairness in the round and the CVA was varying existing arrangements (rather than creating new contractual arrangements) which enabled the landlord to terminate the arrangement if they thought fit. Overall, the rent reduction was deemed not to be unfair. The challenge on ground 2 therefore failed.
  3. Each of the applicant landlords' leases contained a provision entitling them to re-enter in the event that Debenhams entered into a composition with its creditors. However, the CVA purported to prevent any landlord from exercising such a right. The Judge agreed that the landlords' right was a property right not capable of being affected by a CVA. The challenge on ground 3 therefore succeeded.
  4. Evidence given on behalf of the supervisors was that advice had been received to the effect that all leases were over-rented when compared to current market rents. That evidence was unchallenged. Evidence was also given on why it was necessary to draw a distinction between suppliers of goods and services and long-term liabilities to landlords. The Judge was satisfied on the evidence that the differential treatment of landlords was justified but remarked that there would have been unfairness if landlords were expected to take reductions in rent below the market value of the premises concerned. No evidence had been given by the applicant landlords to suggest that was the case. The challenge on ground 4 therefore failed.
  5. The Judge found that there was no material on which to conclude that the prospect of a modest recovery from the claims identified would have resulted in a different result on voting for the CVA such that this ground failed. The challenge on ground 5 therefore failed.

Overall, the judgment will be seen as a win for insolvency professionals but disappointing for landlords. Although the application succeeded on one ground, the discretion afforded to the court meant that the Judge removed the offending provisions from the CVA and declared the modified CVA valid and enforceable such that the CVA remains in force. It is not yet known whether the landlords will be appealing the decision.

Even if there is no appeal there remains scope for further challenges to retail CVAs in the future. Based on this judgment:

  • Any attempt to reduce rents below market value may be unfair.
  • Landlords are likely to pay close attention to whether any CVA proposal properly justifies differential treatment of unsecured creditors.
  • Any attempt to alter a landlord's property right is likely to be challenged.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Kirkland & Ellis International LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Kirkland & Ellis International LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions