My tenant is proposing a CVA. What are my options?

“A net 1,123 stores disappeared from Britain’s top 500 high streets in the first six months of
the year, according to the accountancy firm PwC.”

With growing uncertainty in the economy, numerous retail and restaurant tenants are
currently proposing company voluntary arrangements (CVAs) with the primary purpose of
reducing their rental commitments. The restaurant industry, in particular, blames the new
living wage, the apprenticeship levy and increased business rates, (subject to Chancellor,
Philip Hammond’s recent Budget concession). Recent illustrations of this process are Byron
and Jamie’s Italian.

So, what is a CVA?

It is a procedure that may assist a company to resolve its financial difficulties. It is a
compromise or other arrangement between a company and the majority or all of its creditors
that settles the debts of a company to those creditors. The company stills exists and the
company’s property remains vested in it.

A CVA is implemented under the supervision of an Insolvency Practitioner, who is known as
a Nominee before the CVA proposals are approved and the Supervisor afterwards. The
Directors of a company will work with Insolvency Practitioner to prepare the CVA proposals
setting out the terms of the compromise with the creditors.

Once the CVA proposals are drawn the proposal will be implemented if it is approved by at
least 75% by value of the company’s creditors who respond in the decision procedure,
unless those voting against the CVA include more than 50% by value of all the unconnected
creditors whose claims are admitted for voting.

If the CVA is approved, no further steps are required for it to take effect as the CVA will take
effect from the date when the creditors decided to approve it and it will bind all creditors who
are entitled to vote in the decision process.

Effect on Landlords

Before a CVA is entered into a landlord is free to pursue any relevant remedies. Once the
CVA is entered into a landlord will be bound by the terms of the CVA if it was entitled to vote
in the decision procedure, regardless of whether or not it actually voted or was notified of the
qualifying decision procedure.

Depending on the terms of the proposal a CVA could remove a landlord’s right to forfeit the
tenant’s lease and restrict the right to use the commercial rent arrears recovery process.
Sometimes the CVA may even prevent a landlord withdrawing funds from a rent deposit.
The CVA may also cover future payments due from the tenant, so a landlord might face an
arrangement which limits recovery of arrears and future rents.

If you have the misfortune to be the landlord of premises which is to be closed under the
CVA, the best thing to do it not to accept the premises back any earlier than absolutely necessary.

A CVA can allocate a fund to pay the rates on closed properties for a period but are not obliged to do so. Once a landlord has responsibility for a property again there will be an insurance rent and service charge shortfall and the ever-present business rates to pay.

The most important thing a landlord should do with a tenant who is considering a CVA is to
attend the meeting and make your vote count. There is still a chance to influence the terms
of the CVA before it is finalised but, once it is in place, even landlords who did not bother to
attend the meeting will be stuck with its terms. However, a landlord may in limited
circumstances, challenge the CVA within 28 days of approval of the CVA, if the landlord is
unfairly prejudiced by the CVA.

If you have any queries concerning this or any other matter please contact Laura Sainsbury or Vijay Murarji, Solicitors within our Commercial and Property Dispute Resolution Teams on 020 8567 3477 or e-mail lsainsbury@prince-evans.co.uk or vmurarji@prince-evans.co.uk