Wednesday, 7 July 2010

Not such a fairy tale ending for Miss Sixty

Fashionista followers will know that regardless of how beautiful she finds a pair of Jimmy Choos, Fashionista is all too aware that it's unwise to skip paying the rent to pay for that classic kitten heel as the landlord always has the final word.

This point will no doubt be ringing in the ears of the Miss Sixty and Energie fashion chain owners. Indeed the landlord Mourant, which owns the 135,300 sq ft Metquarter shopping centre in Liverpool where Miss Sixty occupied a 3,300 sq ft unit and Energie had a 3,089 sq ft store, of which both were on 10-year leases and guaranteed by Sixty UK's Italian parent company, Sixty SPA, has successfully challenged the Company Voluntary Arrangement (CVA) entered into by the retail owners. Mourant has claimed that the retail group and its Italian parent adopted a "cynical approach" to the CVA. During his submissions, counsel for Mourant said that Sixty SPA and Sixty UK were "perfectly aware" that the CVA would not work but proceeded with it because they knew that it would take the landlord around 18 months to challenge the CVA, and would take even longer in Italy.

However, lawyers for Vantis plc accountants attempted to put forward some revisions to the CVA which were refused by the High Court. Vantis argued that the claim by Mourant that the CVA "unfairly prejudices" its interests as a creditor of the UK retail group and that there were "material irregularities" in relation to the creditors' meeting would no longer be an issue if the CVA was amended. The judge refused the adjournment application and ruled that he had seen no evidence of the proposed amendments and was being asked to "to proceed on a wholly speculative and uncertain footing". Further, the judge ruled, the application was made at the "59th minute of the eleventh hour" which was far too late for there to be any prospect of the court agreeing to it.

This demonstrates once again that for retailers, getting landlords (usually the most significant unsecured creditor) on side can either make or break a CVA proposal. By way of a brief re-cap, a CVA is an agreement between a debtor and its creditors which, once it has been agreed by the requisite majorities of unsecured creditors (75% in value of those present and voting) and shareholders (a simple majority in value), becomes binding on all unsecured creditors who were entitled to vote at the creditors' meeting to approve it – even if those creditors voted against the proposal, or did not attend the meeting.

Under the CVA proposed by Sixty UK, the landlord did not have the benefit of a guarantor. Had the company gone into liquidation, the guarantor's obligations under the lease would have continued but under the CVA Sixty SPA can simply walk away.

So when Mourant's counsel roared "Fee Fi Fo Fum! I smell the blood of an unfairly prejudicial company voluntary agreement," during his submissions to the judge this week, the owners of Miss Sixty and Energie may have found themselves quaking in their kitten heels…