Department store chain House of Fraser is facing a legal challenge from a group of landlords over a plan to close more than half its stores by next spring.
The landlords, who filed a complaint via the court of session in Edinburgh on Friday last week, say that they were “unfairly prejudiced” during an insolvency process known as a company voluntary arrangement (CVA).
The CVA was approved by a majority of creditors, including landlords, last month. However, the group, who are being advised by accountancy firm Begbies Traynor and property advisory firm JLL, also allege there were “material irregularities in the implementation of the House of Fraser CVA”.
The CVA plan involves the closure of a total of 31 of the 59 current House of Fraser stores, including, surprisingly, its flagship outlet in London’s Oxford Street. The closures will result in about 6,000 job losses from the 17,000-strong workforce and the company has warned the only alternative is to go into administration.
However, rebutting the approval the statement from the landlord group said it was “unjust” that House of Fraser’s majority shareholder, Nanjing Cenbest, which is part of China’s Sanpower conglomerate, was set to receive £70m for some of its shares in the ailing department store from a new investor, C.banner, as part of a wider rescue deal. Meanwhile landlord creditors will be hot by the move.
“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,” the group said in a statement.
RPA Perspective The landlords – who were also upset that the holding group for House of Fraser has no financial difficulties - complained that they had not been properly consulted about the CVA or given sufficient information about how House of Fraser planned to trade over the coming months.
They wonder why Nanjing Cenbest has not been expected to meet the retailer’s debt issues.
The legal action is a sign of a fightback by landlords against the increasing use of CVAs, which have hit the headlines in 2018 thanks to a series of struggling retail and restaurant businesses using them to offload unwanted outlets or cut rents.
“CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders,” said Mark Fry of Begbies Traynor and Charlotte Coates of JLL. “It is our collective view that the retail CVA process in the UK has become fundamentally flawed and needs correcting.”
This CVA is a prerequisite of an investment deal that C.banner agreed with Nanjing Cenbest, chaired by one of China’s richest men, Yuan Yafei.
C.banner has agreed to pay Nanjing Cenbest £70m as part of the deal, which will give it a 51% stake in House of Fraser. It has also pledged to invest a further £70m into the department store’s revival plan.
A House of Fraser spokesperson said: “We note the statement made by Begbies Traynor and JLL on behalf of a group of landlords but at this stage we have not received anything formally. On the assumption that a challenge is filed in court, whilst we are disappointed, we look forward to robustly defending our position and we are confident that this will not affect our commercial plans.”
