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House of Fraser store closure announcements may trigger landlord action against CVAs

British department store chain House of Fraser has become the latest retail industry casualty to a fall in high-street shopping, after announcing plans to close 31 of its 59 stores in the UK. The decision has come as part of a rescue deal with its creditors and is expected to affect around 6,000 jobs.

The announcement has since triggered a call for action on company voluntary arrangements (CVAs), in order to discuss the voting rights of landlords during this process.

What is a CVA?

A CVA is a procedure that allows a company with debt issues to reach a voluntary agreement with its business creditors. It deals with any corporate debts, how they may be repaid and according to which terms.

What is House of Fraser proposing?

House of Fraser has been struggling for a long time, with reports claiming that it had been ‘living hand to mouth for months’. It has been hit overall by the pressures that currently face the entire UK high street, including the increasing demand for online native trading, soaring rents and rates, and other expenses.

Having only reported a profit once in the last 5 years, the famous department store chain is seeking as part of a CVA to cut rent by 25% on 10 of the stores that will remain, and a 70% rent reduction for 7 months for the 31 stores that will be closed.

What are the problems with this?

The situation has, however, also highlighted the difficulties landlords face when companies enter a CVA. Although these kinds of agreements are necessary in the case of insolvency, some believe that lack of weighting given to property owners in the voting process allows businesses who are just avoiding insolvency to 'use it to their advantage' and secure favourable terms against their lease obligations. This, critics argue, puts landlords' cash flows at risk.

In other words, the issue at hand is that voting rights of landlords are equal to that of other creditors, yet their financial losses are at a much greater exposure.

To learn more about Dukes Bailiffs and how we can help you to future-proof your cash flow, speak to one of our operators or visit our website.

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