Jun 11, 2018
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Landlords link up to plan House of Fraser legal action

Jun 11, 2018

House of Fraser’s recovery push is one of those stories that will just run and run for the next few months. And the latest pieces of news? Landlords are getting together to take legal action against the firm, while Sports Direct chief Mike Ashley has written-off some or all of the value of his HoF stake.

House of Fraser

As far as the landlord revolt is concerned, those property owners are both smaller local firms as well some of the biggest hitters in global and UK retail, with Westfield included on the list. A newspaper report said around a dozen firms are talking to City law firm Bryan Cave Leighton Paisner (BCLP) over a move to block HoF’s CVA under which it wants to close 31 locations.

The company’s closure plan includes a raft of sites that are mainly focused on local high streets, many of them businesses previously acquired by HoF from smaller, local independents. But two central London stores are also on the list, as are two large locations in Edinburgh and Birmingham.

So why are landlords in revolt against this CVA when so many others have been pushed through this year? They don’t like the financial arrangements happening between controlling shareholder Sanpower (via its Nanjing Cenbest subsidiary) and soon-to-be majority owner C.Banner. The Sunday Times reported that C.banner is paying £140 million for its stake, but only half of that will be ploughed back into the business with Sanpower taking out the rest. Given that landlords are being forced to take big losses, this is a major sticking point.

The newspaper also said they’re concerned about the weight their voices will carry when it comes to the CVA vote. While 75% creditor approval is needed to push the CVA plan though, “landlords' voting power is reduced by 75% to reflect their post-CVA position.”

Restructuring specialist Begbies Traynor is advising the landlord group and Begbies’ Mark Fry said HoF and its owners are “loading the dice” to ensure landlords could not vote down CVAs. The main legal argument would be that creditors are being treated unequally.

Other reports said some landlords were taken by surprise at the extent of the closure plan as they had been in constructive talks with HoF about downsizing stores or other options. The Guardian quoted Azeemeh Zaheer, chief executive of Cardiff branch owner Naissance Capital Real Estate, saying talks had been ongoing and he only found out about the closure the night before the announcement. The firm said that it won’t back the CVA.

While the landlord action may seem contradictory given that failure to get the CVA plan through could mean administration, many are in the mood for a fight. Commercial property landlords are still trying to find tenants for around a third of the 160 shuttered BHS stores exactly two years after that chain’s failure, while the need to additionally find new tenants for empty sites once occupied by Toys R Us, Maplin, Bench, East and more makes them unwilling to just sit back and accept what’s happening.

Meanwhile, it has emerged that Sports Direct chief Mike Ashley has also suffered from the HoF CVA announcement after it emerged that he has written off £11 million from the value of his 11% HoF stake. Sources said that this figure could add up to a write-off of the entire value of the stake.

Ashley has been an extremely vocal critic since news emerged that HoF was planning a CVA, claiming that the retailer has failed to provide him with information about its plans.

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