Businesses facing insolvency can turn to a 'rescue procedure' known as a Company Voluntary Arrangement (CVA). A CVA can help debtors to reach a compromise with their creditors, such as their landlords, if they don't have capital for their rent.
The CVA works for both tenant and landlord by creating a fixed schedule of payment installments. Once this is published, an insolvency practitioner will invite creditors to vote on it. It will be passed if the number of creditors who hold 75% of the debt sum approve it.
CVAs and landlords
Many retail landlords do not require their tenants to secure their debts, meaning that when insolvency happens, they often have little to fall back on. This is where a CVA can be useful, as it allows them to continue paying, albeit on a changed schedule, instead of being forced to default on their obligations.
However, this can also be a disadvantage in negotiations, as tenants know that it's almost the only realistic option. In more extreme cases, they can argue for a removal of the right to forfeit the lease. Countering a CVA is possible ultimately by preparing agreed payment and lease terms for tenants prior to contracts being signed.
Putting a CVA into practice
If you're presented with a potential CVA, you’ll have 14 days to take notice from the creditors’ meeting. You should review the proposed terms, particularly those including alternative insolvency options, and ensure your claim to voting rights is strengthened.
A CVA will often mean settling a certain amount of the debt up front, which will be noted as ‘number of pence in the pound’. As a commercial landlord, you hold financial claim rights for the following:
- Rent arrears
- Claims for future rent
The negotiations for a CVA can be flexible, giving you grounds to build the best possible deal for both parties. You can challenge any proposals on the basis of ‘material irregularity’ or ‘unfair prejudice’. If you're not happy with the final agreement and you can prove that you (as a commercial landlord) would be significantly better off by liquidising the business, you can also use 'unfair prejudice' to dismiss it.
Dukes Bailiffs offers a range of debt recovery and advisory services; contact us here to learn more.