Recent statistics show that only 20 CVAs were sanctioned in Q3 of last year – a record low for any quarter in the last decade – leading many industry experts to ask whether the CVA has become obsolete.
The decline over the last year has been dramatic, down some 68% on the year before. In comparison, total insolvencies have reached their highest levels since the start of the pandemic, primarily due to a large rise in voluntary liquidations in recent months.
An initial takeaway from this is that all the retail and leisure businesses looking to undertake a CVA may have already done so, while the collapse in recent months of many smaller organisations due to pandemic pressures could explain the rise in voluntary insolvencies. There is little doubt that the gradual lessening of government support over the past two years has contributed to this trend.
The government’s new Commercial Rent (Coronavirus) Bill seeks to further restrict actions that landlords can take regarding commercial rent debt, including compulsory liquidation.
Together with the arbitration process outlined in the bill, tenants otherwise facing insolvency have been given some respite.
Arbitration cannot be utilised by tenants already in a CVA, but it can be used in any other case where ‘protected’ rent debt is involved.
That is rent debt incurred during a period when the tenant was subject to enforced closure between March 2020 and July 2021 (August in Wales).
Landlords can still proceed with court action for debts unrelated to the protected period.
However, landlords cannot allocate rent payments back to the protected period simply to conjure an unprotected debt.
With landlords unable to present winding-up petitions for protected rent debt before 25 March 2022, the bill could mean the anticipated wave of compulsory winding-up petitions predicted by some experts is unlikely.
Given this, and the fact that the most likely candidates for a CVA have already gone down that road, the end may be nearer than we thought.
Katherine Campbell is counsel, real estate litigation, at Reed Smith