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Insolvency Service report concludes that landlords are, broadly speaking, equitably treated in CVAs

For those who missed it the Insolvency Service published an excellent research report at the end of June which focuses on the treatment of landlords in company voluntary arrangements (CVAs). This was against the backdrop of a large number of "landlord" CVAs in recent years – particularly in the retail and casual dining sectors – where landlords have often complained that they have been unfairly treated compared to other compromised creditors. The report concludes that landlords are, broadly speaking, equitably treated compared to other classes of unsecured creditors. But it acknowledges that the level of compromise for landlords can be understated.

The sample of CVAs reviewed by the report authors was relatively low (59 in all), but from that small sample they did identify certain points which those launching CVAs should bear in mind to provide greater clarity and improve how stakeholders understand the CVA:

  1. Length and clarity of CVA proposals – perhaps unsurprisingly, among the CVAs which were reviewed many were thought to confuse rather than enlighten. The inclusion of summary tables and executive summaries which clearly state the rights applicable to all categories of creditors (and perhaps also a post-CVA balance sheet illustrating the impact of the CVA) was thought to improve this. (Although from personal experience the inclusion of such executive summaries can often exacerbate the confusion by adding an element of repetition).
  1. Consultation – more consultation with key stakeholders was thought to be necessary. The report authors have suggested that SIP 3.2 be updated to include consultation with the British Property Federation (BPF). To some extent I expect this is already happening, with many of the more recent CVAs having only been launched following dialogue between the company and the BPF.

The report authors conclude that the CVA offers a flexible and cost-effective restructuring solution that bridges the gap between informal negotiations and formal insolvency procedures such as administration or liquidation. This seems a fair summary, especially bearing in mind that other insolvency procedures – such as the new restructuring plan – are more costly and time-consuming to launch because of the involvement of the courts. Until that changes, the CVA will continue to be of interest to many.

The above said, CVA numbers have fallen quite considerably over the last year or so. We have arguably already passed the high water mark of the so-called "landlord" CVAs which tend to focus on the obligations owed to landlords and which have often left landlords feeling particularly aggrieved by the outcomes. My own personal feeling is that many recent CVAs have been documented in a relatively considerate fashion following the fallout from CVA challenges such as those seen on the Debenhams, New Look and Caffe Nero CVAs. In other words, many companies when launching CVAs may already have learnt some lessons from the previous experience of others.

But there may be more to come. The report authors suggest that there might be something to be gained by taking steps to exclude uncompromised creditors so as to avoid vote swamping. However this would be subject to consultation with key stakeholders and industry bodies. Query whether anyone has the appetite for that!

Perhaps unsurprisingly, among the CVAs which were reviewed many were thought to confuse rather than enlighten.


restructuring and insolvency, real estate disputes