House of Fraser has reached a settlement with landlords that will see the retail chain press ahead with the closure of 31 of its stores.
In June this year, the department store chain announced its plans to close more than half its branches, under company voluntary arrangements aimed at allowing the business deal with its mounting debt.
The move was challenged by a group of landlords on the basis that House of Fraser was taking advantage of the CVA process to avoid payment of land rates.
In the latest move, House of Fraser’s CVA supervisors and the landlords group reached a legal settlement over the weekend, meaning the retailer can now go ahead with its store closures.
It will also continue to seek an investor to fund a rescue deal.
A spokesperson for the joint supervisors of the House of Fraser CVAs said the settlement has been reached to avoid the costs of litigation, while allowing the firm to continue looking for a resolve without the CVAs being subject to the risk of further legal proceedings.
The landlords group released a statement that said: “Although we will not have our day in court, we are pleased with the outcome and hope that our landmark legal challenge sends a clear message to any other companies considering a CVA, on the importance of transparency and fair treatment for all creditors throughout the CVA process.
“Landlords are always willing to enter into proper dialogue with companies and their advisers with the aim of rescuing a business. However, the retail CVA process in the UK has become increasingly misused and prejudiced against landlords and needs correcting.
“CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders.”
Landlords have called on the government to intervene ‘urgently’ in the increasing number of cases of retailers opting for CVAs.
“Landlords are motivated to work with the retail industry, as evident here, and absolutely want to avoid these situations, but the fact is that the inherent weakness of the CVA process remain, as this particular case demonstrates, and this needs to be urgently addressed by the industry and by government,” said the group.