Today (28th June 2022) the government's Insolvency Service published its report investigating a total of 747 companies which had proposed CVAs between 2011 and 2020 in an attempt to ascertain the fairness of the procedure.
The Company Voluntary Arrangement (CVA) was introduced into insolvency law by the Insolvency Act 1986. In recent years, the commercial property sector has raised significant concerns around their use, particularly in the retail and casual dining sectors (think for example of Arcadia and Yo! Sushi). Concerns include how compromises to rental debts, changes to long-term leases or the basis of calculating rents are unfairly affecting them in comparison to other classes of creditors.
Several CVAs have been challenged by commercial landlords. It has generally been argued that proposals which substantially reduce lease payments were approved by creditors who are not materially affected or compromised, but who are able to submit a vote on the proposals nonetheless.
Despite finding that landlord positions were compromised in 93% of CVAs analysed the report goes on to conclude that "the CVA offers a flexible and cost-effective solution that bridges the gap between informal negotiations and formal insolvency procedures such as Administration / Liquidation".
With the government clearly not now keen to intervene and change the rules governing CVAs landlords should remember that most well drafted commercial leases allow forfeiture procedures to start before their hands are tied by a tenant entering into a CVA.
It is clear that at least some landlord positions were compromised in the majority (93%) of the Proposals considered. This compares with the next highest categories of compromise, intercompany creditors at 51% and trade creditors at 49%. Based on this initial analysis, it appeared landlords faced a relatively adverse outcome as they were compromised more often than any other category of impacted stakeholders