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2018 has been described as “the year of the CVA”, especially in the retail and casual dining sectors. Although company voluntary arrangements (CVAs) can be a useful tool to compromise portfolios of leasehold obligations, there are certain situations where a CVA may be unsuitable. Mark Lawford, Adam Plainer, Kate Stephenson, Andrew Wilkinson and Alexander Wood of Weil, Gotshal & Manges LLP examine the practical issues.
Many leasehold CVAs fail where the restructuring is not sufficiently radical in scope and/or there is no cash injection. To succeed, the CVA must be tied into other aspects of a wider financial and operational restructuring—as in the case of Mamas & Papas.
Parallel CVAs would be required, and may need to be inter-conditional. Practically, this makes consent harder to obtain (given the requirement to obtain consent from 75% by value of those creditors voting in each CVA). See the narrow failure of the CVA of Mothercare’s subsidiary, Childrens World; fortunately, Mothercare’s CVA was not conditional on that of Childrens World.
All of the company’s creditors will be entitled to vote on a CVA, including financial creditors, intercompany creditors, employees, HMRC and potentially the Pension Protection Fund (PPF)—even where the CVA only compromises leasehold obligations. The support of such stakeholders may mean the difference between success or failure in reaching the requisite 75% consent (by value, of those creditors who vote). See the critical role played by the PPF on Toys R Us’ CVA, and the narrow failure to reach 75% consent in the Childrens World CVA.
Appropriate valuation of landlords’ claims for future rent for voting purposes has been questioned. The ability to compromise future obligations with a CVA beyond its termination has also been questioned, especially where the underlying leases were granted by deed. This is particularly important where—as with House of Fraser’s CVA—the CVA is only intended to operate for a short time. Landlords are increasingly co-ordinating their response to CVAs and demanding a share in the post-CVA upside. See ongoing action by House of Fraser’s landlords, and calls by the British Property Federation for the government to con
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