Landlord and tenant – Rent arrears – Summary judgment – Claimant landlord granting lease of business premises to defendants – Defendants assigning lease to third party – Claimant claiming arrears of rent – High Court approving restructuring plan under which arrears not payable by third party – Claimant seeking to recover arrears from defendants as guarantors and applying for summary judgment – Whether restructuring plan affecting liabilities of defendants – Application granted
The claimant was the registered freehold owner of Centaur House, 91 Great George Street, Leeds. By a lease dated 29 September 1998, the ground and lower ground floors were let to the first defendant for a term of 25 years commencing on that date. At all relevant periods the premises were used as a gym. The second defendant was a party to the lease as guarantor of the first defendant’s obligations under its terms.
In 2000, the lease was assigned to Virgin Active Ltd (VAL), which continued to be the tenant of the premises under the lease. That was effected by a licence to assign, authorised guarantee agreement and guarantee dated 15 September 2000.
Pursuant to the licence to assign, the first defendant guaranteed the performance of VAL under the terms of the lease and covenanted to indemnify the claimant against any non-performance. The licence to assign further provided that the second defendant guaranteed the performance of the first defendant of its obligations arising under the licence to assign.
The claimant subsequently issued proceedings for arrears said to be due from the tenant under the lease totalling £141,255.22. VAL would normally have been liable for the arrears as the current tenant. However, in May 2021, the High Court approved a restructuring plan for VAL pursuant to Part 26A of the Companies Act 2006: In re Virgin Active Holdings Ltd and others [2021] EWHC 1246 (Ch).
The effect of the plan on landlords was that no past, present or future rent, service charge or other liabilities would be payable by the plan companies under their various leases. Therefore, the claimant sought to recover the arrears from the defendants as guarantors. The claimant applied for summary judgment.
Held: The application was granted.
(1) A scheme of arrangement bound the creditors to whom the scheme applied by operation of law, and not by virtue of an actual or deemed agreement by the creditors affected. The scheme when sanctioned by the court became something quite different from a mere agreement signed by the parties. It became a statutory scheme. It was settled law that a discharge of one of several judgment-debtors by operation of law did not release the other debtors. Under the various Companies Acts, the discharge took place by virtue of a scheme which became operative when it was approved by the court. Accordingly, a scheme of arrangement under what was now Part 26 of the Companies Act 2006 took effect by operation of law: Re Garner’s Motors Ltd [1937] Ch 594 and Johnson v Davies [1999] Ch 117; [1998] 3 EGLR 72 considered.
The parity of language between Part 26 and Part 26A led to the inescapable conclusion that a restructuring plan under Part 26A took effect as a statutory scheme by operation of law in the same way as a Part 26 scheme of arrangement took effect. Both enactments were intended to create arrangements or compositions by debtor companies with creditors. It would be anomalous if a restructuring plan under Part 26A did not take effect by operation of law in the same way as a scheme of arrangement under Part 26, on whose language Part 26A was modelled. There was no reason in logic or principle which would justify the enactments having divergent effects, all the more so if that would lead to differing consequences including, potentially, impacts on the rights and liabilities of third parties.
(2) Therefore, a restructuring plan under Part 26A took effect by operation of law. To the extent that it provided for a tenant to be released from future obligations under a lease, as the plan did in this case, it did so by means of a statutory scheme that released or discharged the tenant from liability. The plan did not rewrite the lease. It released the plan company from future liability under the lease terms by providing that the rent and other liabilities were not payable on its part. Alternatively, to the extent that that could be described as rewriting the lease, it was a rewriting only as between the landlord affected by the plan and the plan company. It left unaffected the rights of the landlord against third-party guarantors. As between them, the lease remained valid and subsisting: Samuels Finance Group plc v Beechmanor Ltd [1993] 67 P&CR 282; [1993] EGCS 97 considered.
Rent, for example, continued to fall due under the lease even if it was not payable by the plan company in whom the tenant’s interest was vested. But if there were any third parties by whom the rent was payable, such as guarantors who were not parties to the plan, the rent had fallen due. Nothing has happened to discharge or release the rights or liabilities as against such third parties.
(3) The licence to assign contained a clear provision that the defendants would not be released by variations of the lease, or by any other matter which exonerated the tenant from its obligations under the licence to assign, and that any such release could only be by way of release under seal given by the claimant. There had been no release under seal.
Although the plan contained a provision deeming it to take effect by deed, that notional deed would merely confirm that VAL had been released from its obligations by operation of law, and so would not operate as a release under seal given by the claimant to the defendants.
(4) This was a case that gave rise to short, if novel, points of law or construction and the court had before it all the evidence necessary for their proper determination. The sooner the points were decided the better, and the court was satisfied that it should therefore grasp the nettle and decide them. There were no reasons, whether going to discretion or otherwise, for disposing of the claim at trial as opposed to the summary judgment stage.
Accordingly, the claimant was entitled to judgment on the claim: Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) and Multiplex Construction Europe Ltd v Dunne [2017] EWHC 3073 (TCC) considered.
Stephen Jourdan QC and Imogen Dodds (instructed by Teacher Stern LLP) appeared for the claimant; James Tipler (instructed by Eversheds Sutherland (International) LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Oceanfill Ltd v Nuffield Health Wellbeing Ltd and another
