High Court dismisses challenge by Caffè Nero landlord
The High Court has dismissed a challenge from one of Caffè Nero’s landlord’s over the company’s restructuring.
After Covid hammered the coffee chain’s trade, it sought approval to enter a company voluntary arrangement (CVA) with the support of more than 90 per cent of its creditors.
A small number of landlords were not happy with the arrangement, which meant they would receive 30 p per every pound in rent owed by the company up to November 30 2020.
Landlord Ronald Young challenged the decision of the creditors to approve the CVA on the basis it “unfairly prejudiced his interest” and there had been some “material irregularity” in the decision process.
On Wednesday, Mr Justice Green dismissed the landlord’s challenge application and rejected all allegations of unfair prejudice and material irregularity.
A spokesperson for the coffee chain said: “We welcome the positive verdict and are delighted that the judge supported our position on all counts. This has absorbed a lot of time and attention over the last nine months and we are grateful to our creditors, our staff, our advisors and, especially, to our landlords for their patience and understanding during this case.
“This was an unsolicited and unwelcome attempt to destabilise our business by the EG Group, who funded a single landlord to pursue the challenge. We look forward to managing our business without further disruption. Since trading restrictions have been lifted, our sales have gone from strength to strength and we are now closing in on pre-pandemic levels.”
Caffè Nero rejected an eleventh-hour takeover bid ahead of the CVA vote by the Issa brothers, whose company EG Group bought the Leon restaurant chain in April.
The billionaire brothers had proposed paying Caffè Nero’s landlords in full for rent arrears accrued during the pandemic.
The CVA was approved by a creditors’ electronic decision procedure that was deemed to take effect at 23:59 on November 30 2020.
Young’s challenge was based on the events of November 29 and 30 and the decision by directors at Nero Holdings not to postpone the CVA process in light of EG’s offer.
“Balancing all the relevant factors and the risks involved, under considerable time pressure and without any clear route for postponing an electronic voting procedure, the conclusion that the nominees came to was well within the range of what a reasonable nominee could have come to in those circumstances,” Mr Justice Green said.
David Baxendale, restructuring partner at PwC, said: “This ruling carries major significance for landlords – both the institutional heavyweights and the smaller operators. The days of the landlord-focused CVA are clearly not numbered as the Courts have given the benefit of the doubt to the company.
“Landlords are often asked to shoulder a large part of the burden of responsibility in CVAs through write off of arrears and changes in the rent terms.”
Since the beginning of 2020, 47 CVAs have been announced by businesses with £25m+ turnovers, impacting more than 4,750 leasehold sites, according to PwC analysis.
“However, for only around 600 of these sites were tenants preparing to hand back the keys, illustrating the focus on changes to rental terms or writing off arrears rather than vacating sites – which has allowed businesses to stay open and preserve jobs in many cases,” Baxendale added.