Struggling department store Debenhams could potentially enter administration or CVA (company voluntary arrangement).
But what are the actions its landlords might take to protect themselves?
Michelle Shean is a partner in our European restructuring and insolvency practice and offers her insight.
Michelle Shean, restructuring & insolvency partner, Fieldfisher: "How can landlords protect themselves in the event of a Debenhams administration or CVA? With difficulty. An administration will prevent forfeiture proceedings being brought without the administrators or the courts consent, and under case law the landlord is only entitled to rent for the period of occupation of the administrator, rather than the whole rent due under the lease.
"Landlords must ensure that they are quick to raise the point with the administrators and get an agreement on the rent for the period of occupation. The right to forfeit will only be granted by the court if the property is not required for the purposes of the administration, the quid pro quo being that the administrator should pay the rent as an administration expense for the period of his or her occupation.
"A CVA puts the landlord in a different position. A CVA, common in large retail restructurings, will seek to alter the terms of the underlying lease for the duration of the CVA. The most common alterations are in terms of amount of rent, terms of payment, length of term, and waiver of breaches. Since a CVA will usually allow for a better outcome for landlords than an administration or liquidation, landlords usually vote in favour.
"But there are two things landlords could consider to try to improve their position: Working together as a group to try to force through a common modification to the CVA proposal, or (and a less risky strategy), ensuring that the underlying lease preserves the landlords position on insolvency by contractually agreeing that any guarantor under an AGA (authorised guarantee agreement) continues to be liable for damages for breaches of the lease, and the full amount of the rent. This is even if the breaches are waived and the rent is reduced under the terms of the CVA."