What are the options for property companies facing insolvency?

In the first instance, companies facing financial pressure may attempt to reach an agreement with their creditors (other than those that are secured) through a company voluntary arrangement (CVA).

This would require the company to put forward a CVA proposal to pay only a proportion of its indebtedness or some other payment arrangement with its creditors. If accepted by 75% of creditors (in value), the proposal would then bind them all and prevent any action against the company while it complies with the agreed payment terms.

Similarly, a company may propose a scheme of arrangement to reach a compromise based on different classes of creditors and members that have similar rights. This time, it is each class that votes and approval is required from 75% of creditors (in value) or a majority by number, before it is ultimately for the court to sanction the scheme.

Alternatively, if they and their lenders are prepared to work together, property companies may seek assistance with a corporate restructure of their existing debt facilities, which could include the implementation of standstill agreements with creditors while new investment is identified and a plan implemented.

Where creditor pressure is too great, placing the company into administration may be the best option in order to safeguard it from creditors seeking to initiate legal action, thus granting the company essential breathing space.

Furthermore, the Corporate Insolvency and Governance Act 2020 also introduced new procedures to aid companies in financial distress, which included a freestanding moratorium and a restructuring plan.

These are ultimately welcome options for distressed property businesses and can offer them a genuine chance of a brighter future instead.

Niten Chauhan is partner at law firm Harold Benjamin