South: Landlords suffer as CVA use spreads says Wilkins Kennedy

The number of companies using Company Voluntary Arrangements (CVA), a form of insolvency procedure, to renegotiate their debts has risen sharply over the last year says Wilkins Kennedy LLP, the Top 20 accountancy firm.

The number of CVAs jumped 10% in the last year to 769 up from 699 in the previous year (year to June 30th) - even though all corporate insolvencies are lower now than they were a year ago (NB if all CVAs related to the collapse of Southern Cross, the care homes group, were included then it would be a 32% rise to 924 CVAs).

Many property landlords feel that CVAs are abusive as they focus on the tenant breaking contracts either to exit much of their rented property or to cut the rent per property.

Anthony Cork, partner, of Wilkins Kennedy, commented: “Landlords feel that too much of the pain in a CVA is taken by them and not enough by the other creditors such as the banks or by the company itself.”

Most CVAs will result in the landlord losing their rental income and being left with empty properties that they find hard to let out but have to pay rates on.

Landlords have pointed out that in some cases, retailers have exited all their retail space in a town through a CVA and then re-entered the town in similar locations at far lower rents.

The last year has seen the use of CVAs spread from the retail sector into hotels. Travelodge is the latest debt burdened company seeking to slash its property bill through a CVA. Eight other hotel groups have undertaken CVAs in the last six months.

Other major companies that have used CVAs to restructure and shed their property portfolios include Fitness First, JJB Sports, Blacks Leisure and Focus DIY.

Cork added: “Retailers and hotel operators argue that most CVAs arise because rents in the UK are so inflexible. Most rents only ever go up so even in the height of a recession a retailer will find it almost impossible to reduce their property overheads.”

“Planning restrictions in the UK mean that rents are far more expensive here than compared to continental Europe and the US. That huge property overhead plays real havoc whenever there is a recession.”

“Landlords do talk about being more flexible over rents but there is little substantial progress on that point. You get the impression that landlords will only renegotiate when they think their tenant is at the brink of bankruptcy.”

Cork explained that landlords should be able to negotiate better deals out of CVAs than they would get if the business went into administration.

He said: “Even where a CVA has eventually led to the company falling into administration, the CVA should have allowed time for a more orderly winding up of the business allowing for a better recovery for all of the creditors.”

“Both creditors and debtors need to approach CVAs honestly and try and understand the position of the other party.

Resources: Wilkins Kennedy LLP website