Cohen v Co-Operative Group: High Court dismisses £205m insolvency challenge over Project Chicago restructure

The High Court has dismissed a £205 million claim brought by the joint liquidators of The Food Retailer Operations Limited (formerly Somerfield Stores Limited) against Co-operative Group Limited and associated entities, ruling that a 2015 internal restructuring exercise known as "Project Chicago" did not constitute a transaction at an undervalue or a preference under the Insolvency Act 1986.

In a detailed judgement handed down on 21 May 2026, Mr Justice Cawson found that the central mechanism of the restructure — the withdrawal of approximately £478 million of share capital from Somerfield Stores Limited (SSL) by its parent Co-operative Group Food Limited — was supported by consideration, namely the capital originally subscribed for those shares. The claim therefore failed at its primary hurdle.

The Project Chicago restructure

Project Chicago was conceived in 2013 as a means of separating SSL's profitable "core" stores from its loss-making and onerous lease portfolio. In November 2015, SSL transferred freehold and leasehold properties and other assets worth approximately £493 million to fellow Co-operative society Co-operative Foodstores Limited and to Rochpion Properties (4) LLP. The consideration was effectively funded through the withdrawals of share capital rather than cash, with the arrangements documented in multilateral funds flow letters.

SSL entered administration in February 2017, only 15 months after the restructure completed, with an estimated creditor deficiency of approximately £205 million.

The consideration question

The joint liquidators argued that the withdrawals of share capital were analogous to dividend payments, relying on the Court of Appeal's decision in BTI 2014 LLC v Sequana [2019] and, more recently, TAQA Bratani Limited v Fujairah Oil and Gas UK LLC [2025]. On that analysis, the withdrawals were transactions for no consideration within the meaning of section 238(4)(a) of the 1986 Act.

Cawson J rejected that analogy. He drew a fundamental distinction between the share capital of a limited company — where shareholders invest with an expectation of profit participation — and withdrawable shares in a registered co-operative society, where members subscribe on the specific basis of recovering their subscription. Applying Chalcot Training v Ralph [2021] and the House of Lords' reasoning in Equitable Life Assurance Society v Hyman [2002], he held that the board's exercise of its discretion to approve withdrawals gave effect to an existing entitlement rather than initiating a new transaction without consideration.

Insolvency and the onerous lease liabilities

Had the consideration point been decided the other way, the court found that SSL did become balance sheet insolvent in consequence of the restructure, rejecting the respondents' argument that Holdings' continued accounting provision for onerous lease liabilities meant no provision needed to be made in any section 123(2) balance sheet for SSL. Cawson J considered it commercially unrealistic to treat that provision as meaning SSL faced no liability, given that Project Chicago was designed precisely to distance other Co-operative societies from those very liabilities ahead of an anticipated disposal and eventual insolvency of SSL.

The statutory defence and the preference claim

On the statutory defence under section 238(5), the court accepted that the SSL directors had acted in good faith and genuinely believed they faced a binary choice between Project Chicago and immediate insolvency. However, the objective limb failed: the failure to appoint an independent director or obtain independent restructuring advice meant the directors could not demonstrate reasonable grounds for believing the transaction would benefit SSL.

The preference claim failed on the desire to prefer issue. The court accepted the evidence of the SSL directors, which was not challenged under cross-examination, that they had no subjective desire to improve the Co-operative Group's position in the event of SSL's insolvent liquidation.

The application was dismissed in its entirety.