Real Estate and Infrastructure

A retail landlord's essential guide to CVAs

Published on 19th Dec 2018

After 2018 was branded the "Year of the CVA", it looks like CVAs will continue to hit the headlines in 2019, particularly in retail, with retailers facing economic uncertainty and high street woes.

As a landlord, how can you better protect your position prior to a possible CVA?

  1. Forewarned is forearmed: watch out for warning signs of distress and try to keep abreast of your tenant's performance – including liquidity issues, late payments or requests for changes to payment terms.
  2. Prepare for the worst: when negotiating leases carefully consider guarantees and rent deposits (although a CVA can limit the ability to rely on these).
  3. Maintain dialogue with your tenant: and ensure tenants have accurate contact details.
  4. Be realistic: know your options and the commercial issues linked to the property.

If your worst fears are confirmed and you are faced with a CVA proposal, how do you mitigate the risks?

  1. Check the lease: if permitted, reserve the right to forfeit or terminate and take legal advice.
  2. Review the proposal: assess how the terms affect you. In particular, are you a closed/open or hybrid store?
  3. Boost the value of your vote: gather evidence to establish a higher value of future rents and dilapidations.
  4. Liaise with other landlords: if appropriate, you might be able to block the CVA or obtain more favourable terms by joining with others.
  5. Exercise your rights: participate in the vote by attending the creditors meeting or voting by proxy.

Above all, continually evaluate the  commercial position.

 

CVAs Explained…

A CVA is: A flexible formal insolvency procedure used by companies in financial distress to obtain legally binding arrangements with unsecured creditors to settle or reduce debts and obligations.
CVAs are used because: Debts and legal obligations will be compromised and control will be maintained by the directors.
Convening a CVA meeting: Occurs after a circulation of a draft proposal setting out the terms sought along with notice of a creditors meeting to vote on the proposal.
CVAs become binding: When the proposal is approved by at least 75% by value of the unsecured creditors who vote with at least half of unconnected creditors voting in favour. Once passed, a CVA is binding on all unsecured creditors no matter how or if they voted).
CVAs can be challenged: within 28 days and in limited circumstances:
  • On "material irregularity" in the conduct of the CVA which is rare and usually linked to a procedural defect in the process.
  • When one or more creditors is "unfairly prejudiced" by the CVA when compared either (i) to other creditors or (ii) to treatment under an alternative insolvency regime.
CVAs affect landlords: in different ways and we often see:
  • Changes to payment dates;
  • New break rights given to the tenant;
  • A reduction in rent (or floor space) and settlement of dilapidation claims;
  • Leases terminated altogether.

 

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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