07 September 2018

CVAs - What do they mean for retailers and landlords?

Company voluntary arrangements (CVAs) have recently hit the headlines as big name retailers including New Look, Mothercare and Homebase, amongst others, have entered into CVAs in an effort to try to keep their business going. However, those that often come off worse from CVAs are landlords.

Helen Hill, Property Litigation partner explains more:

A CVA is an insolvency procedure, which allows a company with debt problems or that is insolvent to reach a voluntary agreement with its business creditors regarding repayment of all its business debts. The main criticism of CVAs is that the spirit of the legislation has been lost. 

CVAs are, more often than not, now being used to target one group of creditors; landlords.  By doing so, companies find it easier to get approval from their creditors to a CVA because many of the other creditors will not be subject to immediate or direct consequences of the CVA and the cumulative effect of the landlords votes will not stop a CVA from being approved.

There are landlords out there who feel strongly that their business of property ownership is being adversely affected by retailers who enter into CVAs that unilaterally reduce the rents they have to pay to landlords, and with whom they have previously entered into commercially negotiated and legally binding leases. 

I have sympathy for the landlords’ views because entering into a CVA allows a tenant to try to save their business at the expense of the landlord’s business, and the CVA supports the tenant paying a reduced or nil rent under leases that were often just bad business decisions on the tenant’s part.
My view is that we have to make directors and the insolvency practitioners responsible for ensuring that CVAs are fair and reasonable.  Hand in hand with that is that the insolvency practitioners’ duties and obligations to the creditors need to be more clearly defined in statute.

Retail is going through a period of change and it is likely that more retail businesses may choose to enter into CVAs to reduce their debts.  We may also see some retailers enter into Administration (Poundworld is a recent example) and ultimately liquidation. 

If you are a landlord faced with a tenant in any form of insolvency arrangement it can lead to a period of uncertainty and reduce the income the landlord receives for their property, so it is important to get legal advice on your position.

Helen’s comments on CVAs have been picked up by media including Property Week and Retail Gazette.

For more information contact Helen Hill, or visit our Retail page.