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Company voluntary arrangements - The impact on landlords

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Times are difficult for the retail industry at present which can be seen on many high streets throughout the country. Empty shops and closing down sales are becoming the norm. 

Company voluntary arrangements (CVA’s) are on the increase but what does this mean for the landlord? It has been reported that a main concern of the landlord is that they are singled out among other creditors to compromise their contractual entitlement to receive agreed rents at agreed times.

The latest forms of CVA’s appear to be more sensitive to the concerns of the landlord, incorporating provisions into the CVA’s including, for example, stepped rents and pots of distributable cash out of which the landlords’ claims can be met in part. Landlords have also been categorised in the CVA’s into different classes according to the level of contribution or the monies that their leases make to the business. Debates have however arisen given the variation in the compromises between the classes of creditors.

Landlords should bear in mind the fact that their rejection of the CVA will not necessarily result in the CVA being rejected.  As such, careful consideration needs to be given to the proposal.

Creditors vote as a whole for the CVA and if accepted by the requisite percentage of the company’s creditors, the CVA becomes binding on all creditors provided that the correct procedure has been followed. CVA’s can be challenged in the court where there is an unfair prejudice to those creditors rejecting the proposal. The court has to strike a balance between the interests of both sets of creditors when determining whether there has been an unfair prejudice.

There is a possibility that landlords may be prejudiced but the question is whether or not such prejudice can be deemed unfair.  This will depend upon the circumstances and each case will turn upon its facts.  If a landlord could obtain a better result in administration or liquidation, which is usually not the case, then it is more likely than not that a finding of unfair prejudice would be made.  Different treatment of creditors is to be considered in an unfair prejudice claim but such treatment is not necessarily fatal to the CVA.

Advice should be sought at the earliest opportunity by landlords in respect of the content of the proposal and the impact on the landlord.

By commercial solicitor, Nicola Whittle