We need a proper discussion about CVAs
As House of Fraser reveals its dramatic restructuring plans, pressure continues to grow for government and the industry to take a fresh look at company voluntary arrangements (CVAs).
The frequent use of the process, by which companies can ask creditors to let them walk away from stores or receive sizeable rent cuts, has left landlords, rival retailers, and of course thousands of employees feeling hard done by.
Yesterday the British Property Federation (BPF) called on the government to review the CVA system. Without naming any names, Ian Fletcher, BPFs director of real estate policy, told City A.M.that some CVAs are seen by landlords as “simply lease-stripping exercises”.
Read more: Next demands rent cuts on par with its struggling neighbours
Meanwhile Revo, a retail property organisation which represents owners, occupiers, local councils and advisers, has urged Clive Betts MP, chair of the Housing, Communities and Local Government Select Committee to launch an inquiry into CVAs.
Speaking to City A.M., Revo CEO Mark Williams said that the process needs some kind of “public scrutiny” in order to change the culture. “We have heard anecdotally that the publicity has made a number of organisations think more deeply about whether they press the button on a CVA,” he said. If MPs draw attention to abuses of CVAs, he said, it will only be used as a last resort. “People dont like to be hauled in front of a select committee.”
Companies must be insolvent to use a CVA, but the definitions of this can range from teetering on collapse to verging on breaking a banking covenant.
There is therefore a growing perception that not all of the CVAs we have seen in recent months are “proper CVAs”. It is clear that there are problems with how the system is being used, especially if it is making conditions less fair for retailers which choose the painful process of closing stores at their own expense (see M&S for perhaps the most dramatic example of this).
But it would be a shame if this lifeline was lost.
As a spokesperson for KPMG put it to City A.M.,CVAs can provide “vital breathing space”. At the rate the high street is emptying, anything offering a glimmer of hope is welcome. Nobody in the industry wants to throw the baby out with the bathwater.
However it is clear that a lack of transparency has harmed the perception of the CVA, meaning an open, sensible discussion of the process is whats needed.
Read more: What is a CVA? And why does it matter?
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CityAM
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