Should Landlords Worry About CVAs?

Should Landlords Worry About CVAs
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Company Voluntary Arrangements or CVAs as they are better known, are when a company reaches an agreement with its creditors to gather all its debts together and repay a set amount each and every month for a period of about five year.

In return for this guaranteed repayment, the creditors will usually write off a proportion of the debt to make the repayments easier.

This will give every stakeholder more certainty about the next few months and years but not everyone feels equally treated in the process.

One of the criticisms of the procedure frequently comes from landlords who sometimes feel that they can be discriminated against in the use and implementation of them – more than any other creditor.

So much so, that the Insolvency Service recently published a report on CVAs looking at the views of landlords in the commercial property sector and whether they were being disadvantaged more than any other creditors, especially in the retail and hospitality sectors where the numbers of shops, bars and restaurants closing has been higher than any other businesses in the past couple of years.

The report found that broadly landlords were treated equally, especially when compared to other unsecured creditors but does make some points about where they can feel unduly pressured.

When it came to the treatment of landlords the report acknowledged that while there may be instances where some corporate landlords might feel they haven’t been equally treated, they generally tend to have a greater influence on the process than other creditors because they tend to have larger voting rights and they have a strong record of being able to propose modifications to proposals or alter lease terms.

They also retain the ultimate sanction of being able to exercise break terms in the lease and take their site back if ultimately unhappy with any solution.

The forfeiture rights clauses are noted as being particularly strong because they usually stipulate that if a tenant enters any insolvency process, not just a CVA, then the landlord can take back the site.  This would apply if a CVA fails and the tenant business looks to liquidation instead.

The final and possible most important finding is that when compared to all the other relevant insolvency procedures such as administration or liquidation, the CVA offers the best opportunity for a return for all creditors.

Liquidation Administration

The report acknowledges that the CVA isn’t perfect and that improvements could be made including making them clearer in returns of what creditors can expect from the process and improved consultation with key stakeholders.

Chris Horner, insolvency director with BusinessRescueExpert, said: “While the use of CVA’s has decreased somewhat over the past two years due to the unique circumstances and economic conditions and environment faced by many companies, it remains an important tool to help otherwise viable businesses overcome problematic debt problems.

“The report shows that while some landlords might feel pressured to accept a CVA, on the whole they are still generally in a better position than unsecured creditors and will still benefit from a procedure being accepted than not.”

Dinesh Kumar VM

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