Landlord CVAs have become more and more prominent as 2018 has developed with a growing number of high-profile retailers and restaurant chains looking to reduce rental costs. Such a CVA will be imposed on landlords if 75% of all of the company’s unsecured creditors support it.
Jessica Walker, partner, Mayer Brown
A company can propose a CVA to compromise any of its debts or to implement any kind of restructuring, subject only to achieving the required majority. Nonetheless, it is landlords who are seeing the greatest impact of the current trend of CVA proposals so it may not be surprising that we are starting to see more vocal resistance.
A landlord can always resist a CVA proposal by voting against it; but one landlord alone may not be sufficient to block a vote of approval. The CVA proposal must contain details of the company’s creditors, so a concerned landlord may seek to rally support for a rejection of the proposal, but this is often a time-consuming and expensive process with no guarantee of success.
Once a CVA has been approved by the necessary 75% of creditors, the only way a dissenting landlord can bring a challenge is if it can prove to the court within 28 days that the CVA is unfairly prejudicial to its interests or there was a material irregularity with the meeting; a difficult task as the court will balance that one landlord’s interests against the interests of all other creditors and it is not necessarily unfairly prejudicial for one creditor or group of creditors to be treated differently to others.
Given these difficulties, we are starting to see more alternative methods of dissent. Revo, the property industry group, has requested a government inquiry into what it claims is the misuse of CVAs to act solely as a rent-reduction tool and a group of House of Fraser’s landlords is reported to be pursuing the company to obtain further information about the calculation of voting percentages and the ongoing business plan.
Despite Revo’s concerns, the use of a CVA to compromise only certain creditors has long been recognised as a valid use of the process and the CVA is deliberately a flexible restructuring tool, so it is not easy to see why the structure of the process needs to be changed.
In every case, the extent to which a CVA is likely to be successful will depend on the proposal put together by the company and whether the arrangement is a genuine restructuring of the business. It is therefore sensible for landlords to try to extract as much information from the company before supporting a CVA and it will often be most effective for landlords to work together to achieve this.
As a well-used and flexible restructuring tool, CVAs are not likely to disappear any time soon.