House of Fraser landlords plan legal action
A group of House of Fraser landlords who feel they have been treated unfairly are not giving up the fight easily and are planning to go to court over the troubled retailer’s rescue plan.
HoF’s CVA plan received creditor approval last month, although a number of landlords voted against it, and the company is now going to close 31 of its stores, which is more than half its total estate.
But the stores to be closed are largely in areas where the space would be hardest to re-let, such as on declining high streets.
The landlords are claiming there was “unfair prejudice” against them when the vote was taken. However, HoF denies this and said that while it hasn't received any notification of legal action it will “robustly” defend its legal position.
In a statement, the landlords' advisors said: “It is our view, and that of our legal counsel, that landlords have been disproportionately affected during this CVA process; not only compared to other creditors, but also to how they could have been treated if alternative routes to rescuing the business were fully explored.”
HoF has already said it doesn't expect any legal action to affect its plans, and it seems that landlords think that way too. But they’re keen to proceed in order to ensure that any future CVA scenarios see the owners of property occupied by struggling retailers treated fairly.
The landlord statement also said: “CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders. The proposals should not be disproportionately detrimental to or prejudiced towards a targeted group of creditors. Our landlord group believes that House of Fraser and its advisors have failed on both counts.”
There has been increasing disquiet in the UK as an ever larger number of retailers have used the CVA process to exit stores that aren’t profitable or to get rent reductions on other locations.
The House of Fraser CVA has attracted particular anger from landlords partly because their voting power was reduced at the CVA meeting. CVAs have to be approved by 75% of unsecured creditors, but landlords' voting power is lessened due to the way in which insolvency rules are applied.
They’re also angry that they’ve shouldered the biggest burden in HoF’s CVA and that the company itself will get a cash injection of around £70 million from its new majority owner.
Meanwhile, there’s also concern because of the particularly large size of HoF stores. While a small unit occupied by a retailer such as New Look would be easier to let out to another tenant, a large department store would take some time to fill, as we have already seen from the relatively large number of BHS stores still empty.
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