Carraway Guildford (Nominee A) Ltd & Ors v Regis UK Ltd & Ors

A company voluntary arrangement may be challenged for material irregularity only where the alleged defect created a substantial chance that creditors would have voted differently. Disclosure must be sufficient in substance to enable an informed choice; it need not follow a prescribed form.

Leaving a creditor unimpaired may be objectively justified where its continuing support is critical to the arrangement. That justification must be examined separately for each creditor. Treating a shareholder creditor as critical, without considering its ability and incentive to fund the business, may cause unfair prejudice.

A nominee must exercise independent professional judgment. The more complex the arrangement, the greater the scrutiny expected. Revocation is discretionary, and repayment of fees is exceptional.

Landlords of premises leased to Regis UK Ltd challenged its CVA under Insolvency Act 1986, alleging material irregularity, unfair prejudice and breaches of duty by the nominees. The CVA compromised most landlord and unsecured creditor claims at 7%, while treating Regis Corp and International Beauty Ltd as critical creditors whose debts were unimpaired.

The CVA terminated when administrators were appointed in October 2019. The remaining issues concerned the utility of revocation, the adequacy of disclosure, the treatment of antecedent transactions and creditor claims, the use of a shutdown administration as comparator, lease modifications, the nominees’ duties and possible repayment of their fees.

1. Outcome. The CVA was unfairly prejudicial to the applicants because International Beauty Ltd was treated as a critical creditor and paid in full without adequate justification. The CVA was revoked, but no order was made requiring the nominees to repay their fees.
2. Disclosure and material irregularity. The applicable question was whether deficient disclosure created a substantial chance that creditors would have voted differently. The 2017 transactions were described sufficiently, and fuller disclosure would not have revealed realistic recoveries. The proposal should, however, have identified the debenture as potentially vulnerable under section 238 of the Insolvency Act 1986; the omission was immaterial because the claim was doubtful and would not probably have altered the vote.
3. Comparator and voting claims. It was reasonable, on the information available when creditors voted, to present a shutdown administration as the likely alternative. A blanket 75% discount of landlords’ voting claims was unjustified because the same formula applied to materially different premises and no adequate basis was given for so large a discount, although the defect did not affect the result of the meeting.
4. Unfair prejudice. Regis Corp’s non-impairment was justified because its support and licences were critical and the debt would ordinarily become payable only on specified default. International Beauty Ltd stood in a materially different position: it was the shareholder’s holding company, Regent had an interest in preserving the business, and paying nearly £600,000 to it materially reduced the recovery available to impaired creditors. That treatment was unfairly prejudicial.
5. Nominees. A nominee must scrutinise a proposal sufficiently to satisfy themselves that creditors are being asked to vote on a proposal capable of fair consideration. In a complex CVA, the nominee cannot rely unquestioningly on the company’s assertions. Mr Williams fell below that standard by failing to examine the justification for treating International Beauty Ltd as critical. Nevertheless, the work performed was not valueless, and absent fraud or bad faith this was not an appropriate case for depriving the nominees of their fees.
6. Revocation. A CVA may be revoked after contractual termination where provisions survive termination and revocation has a practical purpose. The remedy remains discretionary. Here, the finding of unfair prejudice justified revocation.