Commercial landlords call for insolvency rules overhaul amid ‘abuse’ of CVAs
The British Property Federation (BPF) – the industry group representing landlords – has called for an overhaul of UK insolvency rules, claiming the Covid-19 pandemic has prompted “abuse” of restructuring proceedings.
In a letter to corporate responsibility minister Lord Callanan, the BPF said the flexibility of the UK’s insolvency framework had led to the abuse of Company Voluntary Arrangement (CVA) processes, at the expense of commercial landlords.
The coronavirus pandemic sparked a wave of CVAs in the retail, leisure and hospitality sectors, including Moss Bros, New Look and Ann Summers, as struggling firms sought to reduce rents and close stores to balance the books.
The BPF said there had been widespread use of “landlord CVAs”, where there are only one or two comprised classes of creditors – such as property owners – but other unaffected creditors are able to approve the CVA plans.
BPF chief executive Melanie Leech said: “The Covid-19 crisis has brought into sharp focus this abuse of process, which the BPF has been highlighting for years.
“While the crisis has brought genuine hardship to businesses up and down the country, it has also been cynically used as an excuse by wealthy individuals and private equity backers to shift onto property owners the cost of years of failings and underinvestment”.
She added that CVAs were being used to “permanently rewrite contracts without any court oversight and to avoid contractual obligations freely entered into.”
“As well as being fundamentally inequitable, such CVAs are damaging the high street, hurting pensioners and savers, and undermining the UK’s reputation among international investors,” Leech said.
“They also put well-run businesses who do not resort to CVAs at a competitive disadvantage, dampening innovation and creativity”.
The group has called on the government to give compromised creditors votes with a greater weight than those of unaffected creditors, and to require large CVA’s to be independently scrutinised.
It also recommended that CVAs should not be able to enforce permanent changes to contracts and should be a temporary measure, as well as extending the current 14-day notice period to 28-days.
However the British Retail Consortium said the swathe of CVAs “highlights the need for wider reform of the commercial property sector, particularly the move to rents that can flex with economic circumstances”.
BRC property policy advisor Dominic Curran said: “No retailer enters into a CVA lightly.
“They cause understandable concern and uncertainty for employees and suppliers.
“However, CVAs are one of very few ways that a company in distress can restructure to keep trading, employing staff and contributing to the UK economy.”
He added: “Both landlords and tenants need to recognise that they are economic partners, and should work collaboratively to help each other through these challenging times.”