THE HOME OF NEWCASTLE'S LEGAL EAGLES

This might also interest you...

2018 - The year of the CVA

12 Nov 2018

 

This year has seen the problems facing the retail sector on the front page. A combination of factors including the endless rise in internet shopping and high rates demands have led to financial difficulties and many well-known tenants have opted for Company Voluntary Arrangements (CVA’s).  These include House of Fraser, Poundworld, Carpetright, Mothercare and New Look.

 

In this article experts in the Commercial Property team and Insolvency team at Short Richardson & Forth guide you through some of the pro’s and con’s of CVA’s.

 

What is a CVA?

 

A CVA is a procedure allowing a company to change its payment arrangements or pay only a proportion of its debts for a fixed period.

 

What are the benefits of a CVA?

 

If approved, a CVA allows a company to stay afloat when otherwise it would need to enter into administration.  No doubt this would result in a worse dividend to creditors as a whole, including landlords.

 

As part of a CVA landlords frequently have to accept reduced rent, which is not ideal but can be better than having an empty property for an unforeseeable amount of time with the liability for rates and repairing that goes along with that.

 

The problem with CVA’s

 

Landlords often feel they are being asked to foot some of the bill for badly run companies.  For example when House of Fraser fell into financial difficulties earlier this year there were accusations of poor management, a lack of investment, being slow to invest in online sales and having no clear strategy.  However when failing companies turn to CVA’s their landlord, who had no input on those decisions, are asked to accept reduced rents or shop closures.

 

When Mike Ashley’s Sports Direct bought House of Fraser he took to the press to blame “greedy landlords” for the closure of three department stores, but in reality the landlords were just asking the tenants to comply with the legal obligations in the lease they had voluntarily signed. 

 

How can a landlord challenge a CVA?

 

  1. A CVA can only be passed if 75% (by value) of the company’s creditors vote for it.  Landlords are increasingly joining forces to negotiate with tenants or vote down a CVA proposal.

  2. If the landlord believes a new tenant could be found, then usually under a CVA the landlord will be able to give 60 days’ notice to terminate the lease.  A number of landlords have chosen to do this and take back stores and re-let them as part of the New Look CVA.

  3. Lastly, landlords, along with all creditors, have the protection of the ability to challenge CVA’s if they result in unfair prejudice.  This safety net ensures that where a landlord believes a CVA treats them in an unfairly prejudicial way, they have a remedy through the courts to have a judge determine the matter.

 

So?

 

In some cases tenants should trade their way out of difficulties, at the expense of their shareholders and management rather than their creditors. Marks and Spencers are doing this. If the tenant chooses the CVA route then landlords have the opportunity to challenge, but if the options are a CVA or administration then a CVA is the lesser of two evils.

 

If you have any questions in relation to CVA’s or tenant insolvency please get in touch with Alex Withers in the Insolvency team or Paul Earnshaw in the Commercial Property team here at Short Richardson & Forth.

Share on Facebook
Share on Twitter
Please reload

Please reload

  • FB
  • Twitter
  • LinkedIn
  • Youtube

Short Richardson & Forth, 4 Mosley Street, Newcastle upon Tyne, NE1 1DE

Tel: +44 (0)191 232 0283  ·  Email: info@srflegal.co.uk

 

Short Richardson and Forth Solicitors Limited is a private limited company registered in England and Wales under company number 10572065, authorised and regulated by the Solicitors Regulation Authority No 637150.

Short Richardson and Forth Solicitors Limited is a private limited company constituted and run in accordance with the provisions of the Companies Act 2006. The term “partner” has been used to denote individual senior solicitors employed by Short Richardson and Forth Solicitors Limited.