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SHB Realisations Limited v The Prudential Assurance Company Limited (2018)

(Anthony John Wright and Geoffrey Paul Rowley as joint liquidators of SHB Realisations Limited (formerly BHS Limited) (in Liquidation) v The Prudential Assurance Company Limited (2018)

As you will no doubt be aware, BHS entered into a CVA in 2016, which reduced their rents by up to 75% in some cases. The CVA provided that if it was terminated, these discounts would be considered to have never happened and the landlords would therefore have the claims they would have had, had the CVA not been approved.

One month later, BHS entered into Administration, with the Administrators trading from the stores whilst attempting to sell the business, and paying reduced rents established under the CVA.

No buyer was found; the company was liquidated and the CVA terminated.

Directions were sought from the High Court by the Liquidators to determine whether BHS was obliged to pay full contractual (pre-CVA) rents to its landlords. They argued that this was a contractual penalty.

Any contractual provision which imposes a liability on a party for breaching their obligations that is disproportionate to the other party’s interest in the contract being performed, is considered unenforceable.

The intention of this rule is to provide a relief against oppressive contracts.

The High Court found for the landlord in this case. It decided that the rule against penalties did not apply to CVAs, and that the full back rent had to be paid to the landlord as an expense of the Administration.

Posted: 12.04.2018
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