CVA’s – controversial or crucial?

By Louise Male,
Newgate Partner who provides strategic communications counsel for clients seeking a CVA.

Monsoon Accessorize has become the latest UK retailer to seek an increasingly popular Company Voluntary Arrangement to save its struggling stores.

Those three simple letters – C V A – raise a complicated challenge to the power that landlords have wielded over their tenants for decades.

Landlords are vocal about their dislike for the insolvency procedure. They claim unfairness and improper use by companies who back them into a corner they have no wish to inhabit.

Retailers and restaurateurs, shackled by inflated lease prices and terms, say they need to use the restructuring tool to save their firms from falling into administration.

Those against the process say it is a way for companies to walk away from lease liabilities at underperforming sites.

Just last week, Philip Green was able to improve lease terms for Arcadia stores including Topshop, Miss Selfridge and Wallis. The plan was approved by the majority of Arcadia’s creditors.

The result will be a total of 48 store closures and 1,000 job losses. This will be another chip off the crumbling high street. But had the restructuring agreement failed, Arcadia was tipped to fall into administration, putting all 566 UK and Irish stores and 18,000 jobs at risk.

Arcadia’s biggest landlord, Intu, voted against the deal. It cited unfairness to full rent paying tenants, their shareholders and staff in their shopping centres which include Lakeside, the Trafford Centre and Manchester Arndale.

But if the alternative to a CVA is a company administration, that would likely include even more closures.

Over the last 18 months nearly 900 stores have already become or are set to be vacant as a result of CVAs voted through since the start of 2018. Companies using CVAs include Prezzo, Byron, Mothercare, Jamie’s Italian, New Look and House of Fraser.

They are far from the perfect solution. Success rates following a CVA are low. BHS, Poundland and House of Fraser are all examples of companies falling into administration after seeking a CVA.

So are CVAs a crucial tool for companies wanting a viable future for their operations or a controversial way for leaseholders to walk away from their liabilities?

Landlords face a lose-lose situation when CVAs are put on the table. By agreeing to the proposals, they are agreeing to rent cuts and potentially opening the floodgates to many of their other high street tenants demanding rent renegotiations. But if they block the CVA, they risk losing a tenant in their store.

The future use of CVAs is certainly under question. But the future of the high street is a question no one seems to have the answer to.

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