Landlords victim of CVA rescue culture?

Landlords victim of CVA rescue culture?

Landlords victim of CVA rescue culture?

Stevens & Bolton associate Stephanie White asks whether a tipping point has been reached for landlords.

First published in CoStar here.

A raft of new company voluntary arrangements (CVAs) have hit the UK high street in the last few months. House of Fraser, Debenhams and Arcadia have all resorted to calling for a CVA to come to their rescue during tough times, writes Stephanie White, Associate, Stevens & Bolton.

As a result, many landlords feel that they have become the victim of ‘rescue culture’ as they take on store closures and colossal rent cuts under CVAs whilst other creditors escape relatively unscathed.

A CVA is a mechanism to rescue a company facing insolvency. Its aim is to allow the creditors to reach a deal under which the company can trade out of its difficulties, so the creditors will ultimately come out in a better position than if the company were wound up.

However, CVAs have been coming thick and fast and, to continue to gather support, they must actually present a better outcome to landlords than if the struggling company were to become insolvent.

If CVAs are being used as a tool for restructuring rather than as a last resort to avoid liquidation they will become vulnerable to challenge. There are indeed already signs that tolerance for CVAs is diminishing. Phillip Green’s Arcadia CVA had to be adjourned after its first vote so that he could go back to landlords to garner enough support to get the arrangement approved. Although the CVA was accepted at the second vote, the company now faces a legal challenge from US landlords who are unhappy with the CVA’s effect on US guarantees.

At the same time, Monsoon is reported to be offering its landlords bigger equity stakes in the business in return for backing the turnaround plan. This comes amid speculation that the company is not actually in enough difficulty for a CVA to be imposed.

Landlords have so far preferred to support CVAs in the interest of helping companies to survive, rather than run the risk of insolvent tenants. However, they still have their own funders and investors to think of. Landlords will continue to look very closely at whether CVAs really leave them better off, and will be asking themselves if they are acceptable when seemingly not all creditors have to pay the same price.

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