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  • Landlords, Tenant Restructuring Plans and the Rise of CVAs
News 3
27
Jul
Landlords, Tenant Restructuring Plans and the Rise of CVAs
News

House of Fraser is just one of the latest high street giants seeking to restructure their debts to avoid falling into administration or liquidation using an insolvency process called a Company Voluntary Arrangement (CVA).

The British Property Federation (BPF) has recently spoken out about this trend and said too many companies are abusing CVAs. So what exactly is a CVA and what should you do if you are a landlord that has been affected? A CVA is a formal legally binding agreement between a company and its creditors, usually between 2 to 5 years in duration, designed to assist a potentially insolvent company to put in place a regulated re-structuring or rescue plan.

The catalyst for a CVA is usually serious cash flow difficulties and the selling point to creditors is that this process should provide a better ‘return’ than a more formal administration or winding up procedure. In a CVA, the focus is on the rescheduling of debt and future payments (for example rents). However, in the case of leased premises a CVA can also seek to introduce amendments to lease terms to the benefit of the tenant company but potentially to the detriment of the landlord.

In simple terms 75% of the creditors by value need to vote in favour of the proposal and if passed the CVA effectively binds all creditors, irrespective of their voting preferences. It is also highly likely that a CVA will incorporate a moratorium preventing any form of debt recovery or enforcement action being taken even by those landlords who do not wish to be bound by its terms.

For the landlord there are a number of issues to consider:

  • What are the terms of the proposal?
  • How does it deal with existing arrears? More importantly, what are the proposals going forward in terms of rent and other obligations?

Girlings recently advised on the Prezzo Limited CVA proposal which identified no less than seven different landlord ‘categories’ each with varying proposals. Landlords must understand what aspects of the proposal directly affect them and gauge from a commercial perspective what this will mean in practice. It can be a complicated process and in the current economic (and political) climate we are likely to see an increase in use of the CVA which can have advantages compared to formal insolvency procedures.

For further advice on CVAs or Insolvency contact David Mallinson or Chris Brightling.

Please read Reliance on information posted in our Terms of Website Use - see Legal section - before relying on this commentary.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

Authors

David Mallinson

Head of Department
Dispute Resolution
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Our Experts

Chris Brightling

Head of Department
Corporate, Banking & Finance and Commercial Law

David Mallinson

Head of Department
Dispute Resolution

Jeremy Burke

Head of Department
Commercial Property

Amrita Bartram

Partner
Commercial Property

Andrew Watson

Partner
Dispute Resolution, Contested Wills & Estates

Caroline Armitage

Consultant Solicitor
Corporate, Banking & Finance, Commercial Law and Charities & Not for Profit

David Redgate

Partner
Commercial Property

Amy Husk

Senior Associate Solicitor
Commercial Property

Jonathan Masucci

Senior Associate Solicitor
Corporate, Banking & Finance and Commercial Law

Simon Stempien

Senior Associate Solicitor
Commercial Property

Nicola Webster

Associate Solicitor
Dispute Resolution

Sophie Robins

Senior Associate Solicitor
Commercial Property

Allison Simmons

Conveyancing Executive
Commercial Property

John Quinlan

Assistant Solicitor
Dispute Resolution

Katie Collis

Trainee Solicitor
Dispute Resolution

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