Landlords might be starting to feel a little uneasy given the news that Superdry is considering a Company Voluntary Arrangement (CVA). Superdry is reportedly working with accountants to hash out a plan that will likely involve shutting down certain stores and cutting rent liabilities. The accountants instructed will be exploring whether either a CVA or a Restructuring Plan - both of which are processes which allow businesses to seek to reduce their liabilities to creditors – would be appropriate.

What exactly is a CVA?

It's a contract between a struggling company and its creditors where the company seeks to compromise on the debts owed, paying them back over a longer period of time. To kick off, at least 75% of the creditors (by value) need to give it the thumbs up, unless more than 50% of those voting against the plans are unconnected creditors. Once it's greenlit, the CVA binds in all the unsecured creditors, regardless of whether they were on board with the plan or not. CVAs can be game-changers for restructuring, giving a company breathing room from creditor actions while it's in play. But for landlords, it's a mixed bag. While it might be better than other formal insolvency process (i.e. administration or liquidation), the power of a CVA to rejig lease terms has led to more pushback from landlords in recent years.

So, how can landlords push back against a CVA?

If a CVA is proposed then landlords affected have a tight window of 28 days post-approval to make a challenge. The challenge can only be on the grounds of (i) unfair prejudice; and/or (ii) material irregularity.

Unfair prejudice is a question of fact and is determined on a case-by-case basis – a CVA which treats different pots of unsecured creditors in different ways may be prejudicial to those creditors, but the question of fairness will depend on the overall effect of the CVA.

Material irregularity is concerned about the conduct of the decision procedure used to approve the CVA proposal. CVAs are tailored to fit a company's needs and can be fairly lengthy, and given you only have 28 days from the date of approval landlords looking to make a challenge to a CVA need to act fast.

What's on the horizon?

We are seeing a rise in the use of Restructuring Plans (RPs). RPs were introduced by the Corporate Insolvency and Governance Act 2020. RPs are designed to achieve a similar result to CVAs, by imposing reduction of liabilities on creditors. RPs are relatively new, we have seen them used successfully by large companies looking to reduce their overall debt burden but they haven't been used as frequently by retail businesses who have a lot of premises. Given RPs are not as well tested in this space we would expect CVAs to remain a popular choice by large retailers given their adaptability, especially for companies with a hefty property portfolio.

If you do receive a CVA proposal, landlords and their agents should read the proposals without delay, process and take advice on how the specific terms will affect them and ensure that they fully exercise their voting rights.

Landlords should also keep an eye out for the rise of RPs in this space and ensure that they take advice early so as to ensure the optimum outcome for them in the process.

Contributors

Sarah Wilson

Solicitor

Lucy McCann

Partner

Matt Farrell

Partner