Dubbed “the year of the CVA”, 2018 has seen a number of high-profile cases where retailers including New Look, Carpetright and Mothercare have used the CVA to impose rent reductions on landlords and to break leases to close some stores altogether, in order to avoid insolvency.

The news today House of Fraser has called in the administrators has shown the effect that a landlords involvement in a CVA can have on a struggling retail company.

In June, the House of Fraser announced plans to close 31 stores, more than half of its branches, under a CVA aimed at allowing the company to deal with its mounting debt problems.

A group of House of Fraser’s landlords challenged the firm’s plans, on the basis that they were being taken advantage of via the CVA process.

It was publicised that House of Fraser’s CVA supervisors and the landlords group reached a legal settlement over the weekend, however, the announcement that administrators have been now appointed suggests the landlord’s failure to agree to the CVA has caused serious difficulties for the retailer.

What is a CVA?

A CVA allows a company with debt problems to agree with their company's creditors to allow a proportion of its debts to be paid back over time or reduce the debt payable. It must be voted for by 75% of the creditors.

Landlords should be aware that once approved, a CVA will bind all unsecured creditors, regardless of whether they voted for or against the CVA.  Once effective, no unsecured creditor can take any steps against the company to recover any debt falling within the scope of the CVA.

How does a CVA affect landlords?

A CVA can offer a mechanism that allows a tenant company to restructure its rent obligations or change the terms of its leases across some or all of its premises. This can often be to the serious detriment of landlords.

What can landlords do?

If you suspect your tenant may be about to go into a CVA you should take immediate advice on your position, options and strategy. If you would like advice in this area you can contact Myerson by calling 0161 941 4000 or by emailing lawyers@myerson.co.uk.

 

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