Siobhan Jones explores the effects of unfair prejudice & “guarantee stripping” in company voluntary arrangements
Company voluntary arrangements (CVAs) have hit the headlines in recent months due to the financial difficulties encountered by relatively high profile retailers. The CVAs proposed by struggling retailers have met with varying degrees of success and a recent case has further limited the scope for companies to use a CVA to enable their guarantors (often a parent company) to avoid liability under the guarantees provided to creditors.
Unfair prejudice
The use of CVAs as a vehicle for “guarantee stripping” has been the subject of much debate in recent years. Guarantee stripping is an example of unfair prejudice which has been of particular concern to creditor landlords whose tenants seek to enter into CVAs which purport to strip away the liabilities of guarantors. A previous high profile case on this point was that of Prudential Assurance Company Ltd & Others v PRG Powerhouse Ltd & Others [2007] EWHC 1002 (Ch), [2007] All ER (D) 21 (May) (Powerhouse).
PRG Powerhouse Ltd (Powerhouse) was a subsidiary of PRG Group Limited
