A commercial landlord has been granted the legal right to challenge a company voluntary arrangement (CVA) proposed by the Nero coffee shop group.
Nero was severely affected by the Covid-19 pandemic and had fallen into rent arrears at its shops. Mr Young was the landlord of one of the shops, the rent
from which was a main source of his income.
In November 2020, Nero proposed a CVA that would compromise the terms of the shop leases. It stated that the alternative would be insolvent administration under which the landlords would receive next to nothing.
Under the CVA, the rent arrears due to Young would be reduced to 30% of the
outstanding total, meaning he would receive £11,360 of £37,867, and the future
rent would be reduced by being based on a percentage of the shop’s turnover.
The creditors’ deadline for voting on the CVA was 30 November. Young was not particularly happy with the terms but voted in support around 26 November.
On 29 November, a third party offered to buy out the Nero group, refinance its
debt and repay in full all the company’s rent arrears. It requested that the vote
be postponed to allow the creditors to consider the offer.
Nero refused the offer and declined to postpone the vote. The CVA was
approved, and Young began challenge proceedings.
He asserted that the CVA was unfairly prejudicial to the landlords and that the
approval decision should be revoked or suspended, or a revised CVA should be
The third party entered into an agreement with Young to fund his challenge and pay him £100,000 in return for him undertaking not to accept any settlement offer from Nero or withdraw the challenge without the third party’s consent.
Nero applied to have the challenge dismissed on the grounds that it was being
pursued for a collateral and illegitimate purpose in that the third party was
controlling Young to help its takeover bid.
The court refused Nero’s application. It held that it was not appropriate to strike out Young’s challenge or grant summary judgment in favour of Nero based on the collateral purpose argument.
The court had to accept that there were substantive grounds for Young’s challenge and that his reasons for pursuing it were truthful.
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