A High Court judge has ruled against a company voluntary arrangement entered into by the owner of fashion chains Miss Sixty and Energie.
The court this morning said there had been a "prima facie case of misconduct" after administrators were found to have unfairly sided with the retailer against their landlord Mourant, the owner of Liverpool's Metquarter shopping centre.
Liz Peace, chief executive of the British Property Federation, welcomed the news. She said: "This is of huge significance because it shows that immoral acts designed to let directors manage retailers into the ground, blame the landlord and walk away will not be tolerated by the courts. Common sense has won out and this will hopefully make future cases of firms cynically using insolvency laws less likely."
The case was dubbed "the son of Powerhouse" by legal experts, in a reference to the 2007 landmark legal case where electrical retailer Powerhouse's parent, PRG Group, was told that its use of a CVA to escape the lease liabilities of the now defunct subsidiary was "unfairly prejudicial" to landlords.
Quashing the CVA this morning on the grounds that "guarantee stripping" in the CVA had unfairly prejudiced the landlord, Mr Justice Henderson said that there had been a "prima facie case of misconduct" on the part of Sixty UK's joint administrators Peter Hollis and Nicholas O'Reilly that should be considered by professional bodies.
He said: "Unfortunately, the administrators in the present case seem to have lost a proper sense of objectivity, and they allowed themselves to side with Sixty group against the interests of the guaranteed landlords of the closed stores.
"They permitted Sixty SpA to dictate the crucial terms of the CVA, and they misrepresented the true position to the creditors.
"It is only thanks to the persistence of the applicants and their legal advisers that this regrettable state of affairs has come to light."
The dispute centred on a rental guarantee that Mourant had been given by Sixty UK's Italian parent company, Sixty SPA, over the leases of Miss Sixty and Energie stores at the shopping centre.
Under the terms of the CVA proposed by Sixty UK last April, Mourant lost the guarantee in return for just £300,000. If the company had instead gone into liquidation, then the guarantor's obligations under the lease would have continued.
Davies Arnold Cooper, the law firm advising Mourant, said in a statement: "We are delighted with the robust decision of Mr Justice Henderson handed down which is a thorough vindication of Mourant & Co Trustees Limited's decision to challenge the legality of the Miss Sixty UK CVA.
"The Judge found the CVA to have been fatally flawed and stated that it should never have seen the light of day.
"The Judgment should encourage other disadvantaged Landlords to challenge the legality of CVAs which unfairly restrict their ability to pursue solvent guarantors to meet the very circumstances for which the guarantees were given.
"The Judgment emphasises the duties of administrators and supervisors to act independently and in good faith so that they do not unfairly prejudice the interests of any creditor, particularly in circumstances where the effect of a CVA might otherwise be to deprive a creditor of a right to pursue a guarantor."