Flannels CVA undervalues landlords, says BPF

Michael Hunt

The company voluntary arrangement proposed by Flannels is potentially damaging to landlords according to Liz Peace, chief executive of the British Property Federation.

Peace believes the Flannels CVA could set a far more potent and damaging precedent than the Blacks Leisure CVA, which was passed yesterday, as it is seeking to compromise all creditors, not just close premises.

The BPF said it is taking all trade creditors and revaluing them at 60% which means they immediately would lose 40% of what they are owned. They would then pursue a buy-off of lease with six months rent.

Peace said: "In all the CVAs we have seen, the driver behind them has been the banks who have demanded that the retailers shed under-performing stores if they wish to continue. It's understandable that banks should look at things from an investment perspective rather than from a retailing one, but what this means is that CVAs will only be a way of maximizing someone's investment rather than be a fair way of sharing the pain.

"While this CVA has been transparent and covered landlords' empty rates payments on closed stores, it has not taken any bite out of shareholders' or other creditors' pockets. Landlords have borne all the pain, and, when you consider that many of our pension funds are invested with them, it is clear that this is not fair."

Under the CVA, Flannels is reportedly planning to close three stores and reduce payment for stock.

The directors of Manchester-based Flannels have finalised the terms of a CVA proposal and appointed Bill Dawson and Daniel Butters from Deloitte's Manchester and Leeds offices respectively as joint nominees.

Should the CVA proposals be approved by the creditors and members of the company, Deloitte said a dividend of approximately 60p in the pound will be repaid to the unsecured creditors, with an uplift of 10p in the pound to 70p in the pound for stock suppliers in recognition of their likely retention of title claims. The company's secured lender has confirmed its support for the CVA proposal.

The CVA proposal needs the support of 75% of the unsecured creditors and 50% of the company's members to be approved.

The meeting of members and creditors takes place on Monday 30 November at Deloitte's offices in Manchester.

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