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Company Voluntary Arrangements – What Landlords Need to Know

The media is once again reporting big name retailers contemplating Company Voluntary Arrangements (CVAs). We set out below a quick refresher on what a CVA is and what a landlord should consider if it hears that its tenant is considering this route. 

What is a CVA?

The aim of a CVA is to avoid insolvency. A CVA is a mechanism whereby a company in financial distress can restructure its debts and liabilities. The statutory framework allows a compromise or variation of contractual obligations owed to creditors i.e., rents reduced and lease terms varied. At least 75% of the creditors (by value) need to vote in favour. The company continues to exist and its property remains vested in it.

How does the landlord find out about a tenant's CVA?

For big names, it will likely be reported in the press. In all cases, the nominee supervising the CVA must give notice to all known creditors which would include a creditor landlord.

What should a landlord do if it receives a CVA proposal?

A landlord should act swiftly to protect its position and consider the proposal carefully. CVAs are often long and complex documents, legal advice should be taken on the implications and requests made of the insolvency practitioner for further information if necessary. It is essential that landlords exercise voting rights.

How does a tenant's CVA effect a landlord?

Once the CVA is entered into, then in respect of the debt owed by the tenant, the landlord creditor is bound by the terms of CVA.

CVAs generally offer landlords the opportunity to terminate the lease.  Landlords’ exercising break rights under the CVA must ensure the correct form of notice is used and that the notice is served correctly and in time. Legal advice should be taken.

The landlord's right to forfeit remains but there are a number of considerations which arise, and this is by no means a simple option. Again, landlords should seek legal advice.

Whether a CVA releases former tenants or guarantors of the tenant depends on the terms of the particular CVA (and in the case of a guarantor, also upon the terms of the particular guarantee). However, this option should not be overlooked and may be a valuable option which should be discussed with legal advisors.

Can a landlord challenge a CVA?

A landlord may challenge the CVA within 28 days of its approval if it considers that it is unfairly prejudiced by the CVA or there was a material irregularity in relation to the qualifying decision procedure. The grounds for challenge are limited and previous legal decisions suggest low prospects of success.

If the CVA is challenged, it may be revoked, suspended or put to the company or the company's creditors for reconsideration.

 

Posted on 03/04/2024 by Ortolan

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