Despite describing themselves as a global fashion force, Arcadia, owned by Sir Philip Green, has approached its creditors, including Intu Properties plc, with company voluntary arrangements in a bid to stave off collapse. But what exactly is a CVA and what impact does it have on landlords and tenants?
Arcadia owns fashion retailers Topshop, Topman, Burton, Miss Selfridge, Wallis, Evans and Dorothy Perkins and was bought by Sir Philip Green’s investment company Tevata in the 1980s. It has been widely reported that the group is struggling, hit hard by greater competition on the high street and, more particularly, an increasing shift to shopping online, leading to a fall in sales and profits.
It emerged earlier this year that, in order to attempt to stave off collapse and rescue its faltering business, it had approached its creditors with company voluntary arrangements. Among those creditors was Intu, the owners of a number of large shopping centres up and down the country, including the Trafford Centre in Greater Manchester, Chapelfield in Norwich and our very own Lakeside shopping centre in Thurrock, Essex.
Company voluntary arrangements (or CVAs) provide a company with a means of restructuring its unsecured debts, whether by reducing debts in an effort to ensure it remains afloat or by changing the terms of repayment, such as changing the date on which said debt falls due. CVAs are proposed by a company’s nominated insolvency practitioner who is tasked with seeking the approval of the company’s creditors and, like in the case of Arcadia, needs to obtain the approval of at least 75% of them (by value of the creditor’s total debt).
In the world of commercial property, CVAs are of interest to struggling tenants who seek rent reductions to stave off administration but also to landlords who need to balance the risk of accepting a lower rent from their tenant to ensure a continued flow of income against the likelihood of being able to lease the premises in the near future to a tenant able to pay full market rent.
In order to save the business, Arcadia proposed seven CVAs with a plan to grant Landlords a 20% stake in the business, with a promise of an additional £50 million to be invested in stores to improve its competitiveness with high street rivals such as H&M, Zara and Primark.
Having failed to convince its landlords on that first run, Arcadia and Sir Philip Green were forced to go back to the drawing board to revise its proposals. On the next occasion they approached their creditors with an additional £9.5 million a year for a period of three years to limit its proposed rent reductions: Arcadia had initially proposed rent cuts of 30%-70% with the further investment promised, limiting those cuts to 20%-50%. The new proposals went for a vote and secured the backing they required to proceed, which involve at least 23 store closures and rent cuts to around 200 stores.
It has been reported that further closures could be made after its landlords reserved a right to let premises to other parties should they be willing to pay market rent.
With high street retailers facing the squeeze and numerous well-known brands either in, facing, or having faced administration, and some having disappeared from town centres completely, this will not be the last time we hear about CVAs. It is likely that more approaches will be made to landlords to lower rent, though clearly the larger the tenant, the more likely such an approach will work.
Both tenants struggling to pay rents, and landlords owed rents would benefit from speaking to a commercial property solicitor in the first instance to discuss the rent arrears and the available options. Contact our Commercial Property Department who will be able to assist and can offer some free initial advice.Company Voluntary Arrangements are not solely limited to commercial leases and our Commercial Litigation Team will be happy to advise creditors on debts owed by an insolvent company/ individual, as well as advising companies with cash-flow difficulties. This article was written by Ben Hersom, Solicitor in the Commercial Property Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2019.