Tenantâ??s CVA fails to shield parent company guarantor from rent liability

In 2006 the electrical retailer Powerhouse proposed a controversial ‘corporate voluntary arrangement’ (CVA) which would allow the closure of its loss making stores but to keep open its profitable ones. Powerhouse hoped to pay a fraction of the rent due to its landlords for the loss making stores which were to be closed. The proposal would have released its parent company PRG Group Ltd from guarantees to the landlords of the closed stores. On 1st May 2007 the High Court ruled that the CVA was unfairly prejudicial to the landlords because to avoid the guarantees would defeat the purpose of the guarantees.

Landlord’s will need to consider if guarantees can be drafted in order to protect against a future CVA and also to consider whether higher rental deposits should be obtained in light of this case.