Landlords wary of CVA ‘abuse’
A SPATE of company voluntary arrangements (CVAs) in recent months has led property chiefs to warn that future agreements will only be supported in genuine cases of hardship.
The British Property Federation has expressed concerns that CVAs are being used by firms wishing to strategically downsize and to hive off underperforming stores.
It said the industry will stand firm against future CVA proposals that it considered to be a mis-use of the system.
The warning came after the latest CVA proposal – for menswear chain Suits You – was backed by 98% of the firm’s landlords, following a vote.
CVAs let companies reduce their debts and interest payments without going into administration – but require the consent of at least 75% of creditors. They have become a popular instrument to help struggling businesses – particularly retailers – restructure while remaining solvent.
Wigan-based JJB Sports was the first to go through the process, with the arrangement devised and managed by Brian Green, of KPMG in Manchester. Others included DIY chain Focus, Blacks Leisure and fashion retailer Flannels.
The backlash has followed the recent news that Blacks Leisure planned to expand back into stores it has previously exited through the CVA.
Liz Peace, chief executive of the BPF, said: “Landlords are caught between a rock and hard place. If they support a CVA we’re creating a two-tiered market, disadvantaging successful, well managed businesses by offering cheaper rents to their competitors and if they oppose it they’re accused to sending the retailers under even though they absolutely no say in how the firms are run.
“Landlords also do not force retailers into agreeing leases or into expanding beyond their capacity. Clearly there is resentment over abuses of the system and we now need a public debate on how the system is taken forward.”
Several major landlords worked closely with KPMG to ensure that concerns about the Suits You CVA were allayed at an early stage.
Ms Pearce added: “There are now plans to look at what clauses could be included in future proposals to protect landlords would have a way of benefiting from the kind of miraculously recovery enjoyed by Blacks, shortly after their CVA last winter, who then quickly announced plans to expand back into locations they had vacated.”
Mike Hayhoe, associate director of retail at property consultancy GL Hearn said landlords had made the right decision in backing the Suits You CVA.
He added: “By avoiding immediate closures it also means landlords have not been lumbered with void costs, with enough time to find new tenants on better terms.
“SRG will be hoping that by agreeing these terms they will maintain a healthy relationship with landlords and retain some confidence in them as they try to steer themselves out of a difficult period. The main reason being that they will inevitably need to knock on those doors again, if and when they recover.”
