Daniel Stern of Slater Heelis writes:
The news this week that a group of powerful landlords is set to take on House of Fraser and demand better terms from the struggling department store chain has catapulted Company Voluntary Arrangements (CVAs) into the property spotlight.
House of Fraser is seeking to launch a CVA – a procedure which allows a company to address its financial difficulties and settle debts by coming to an arrangement with its unsecured creditors.
Other major high street names such as Mothercare, Poundworld and Carluccio’s have also recently formed CVAs which have impacted on landlords.
What is a CVA?
Put simply, a CVA allows a struggling company to trade out of its difficulties or to secure a more equitable distribution to creditors than might have been achieved through other insolvency processes.
How does it work?
- A proposal will be realised if approved by at least 75% of the company’s creditors
- Once passed, it will bind all the company’s unsecured creditors (including the landlord)
- Once entered into, the landlord is bound by the terms of the CVA if it was entitled to vote in the qualifying procedure, regardless of whether it voted or was even notified of the vote
- Landlord has 28 days from the approval to challenge on limited grounds (such as being unfairly prejudiced). A challenge may result in revoke, suspension or reconsideration
Whether a landlord can sue for rent following a CVA depends on the terms of that particular CVA.
In general, the landlord’s right to forfeit remains (unless the CVA specifically removes this right). There is also a specific exemption for small companies which is one that satisfies two or more of the following criteria:
- A turnover no greater than £10.2 million
- Balance sheet assets no greater than £5.1 million
- No more than 50 employees
This is known as a moratorium, which means during the period which the moratorium is in place action cannot be taken and proceedings cannot be commenced against the company.
- Will come into effect when the directors file a copy of the CVA proposal at court
- Will end on the day on which the CVA is approved/declined by creditors (subject to maximum period of 28 days which can be extended by a maximum of two months)
What else do you need to know?
Where a CVA is in place, landlords will be bound by this and any rent arrears, future rent and other sums due under the terms of the lease will be fixed by the terms of the CVA (unless the terms of the CVA exclude those claims from the scope).
There is no power for a lease to be disclaimed by the insolvency practitioner in connection with a CVA.
What you need to do
Act fast! If you suspect your tenant may be about to go into a CVA you should take immediate advice on your position, options and strategy.
A CVA won’t wait for you and it is worth remembering until a CVA is entered into, a landlord can pursue any available remedies.
CVAs are becoming increasingly frequent as a consequence of the ‘rescue culture’ at the heart of insolvency regimes and I would be happy to help any landlords who want to protect their business by being prepared and on the front foot.
Call me on 0161 672 1543 or email email@example.com for a confidential discussion about your situation.
This article was originally published on Place Resources.