In the summer of last year, PCR discussed the difficult market conditions for many businesses who were facing an uncertain future, with the likelihood of an expected rise in insolvencies as a result. 

Several businesses were, in fact, continuing to face a ‘squeeze’ due to a number of factors, including the continued growth of online shopping, rising labour costs and business rates, and the drop in consumer spending in the midst of economic uncertainty. In particular, it was the retail and restaurant sectors which were mainly affected, as the high street continued to be a difficult place to trade for numerous retailers and food outlets alike. However, this has not been a surprise to those who have kept a close eye on the retail sector, with the warning signs already there.

This sentiment was echoed in April last year by Julie Swan, Insolvency Practitioner at PCR who said:

“As we had seen with the high-profile collapse of Toys R Us and Maplin’s, the high street is facing difficult volatile trading conditions with the most common reasons appearing to be a decrease in sales volume, with fewer companies reporting signs of growth and the surge in changing habits of consumers who are spending more on leisure and travel.

Those businesses which are overburdened by debt have clearly suffered most, and as blunt as it may sound, it is perhaps better to allow them to continue to fail, given that insolvency is inevitable. Other companies, such as Debenhams, for example would need a radical overhaul to become more relevant to consumers in order to deliver the level of like-for like sales growth to cover the group’s rising costs base”

So, although this came as no surprise to us at PCR, it appeared that Toys R Us had set a trend, following the approval by creditors towards the end of 2017 of the Company Voluntary Arrangement (CVA). This was quickly followed by the troubled burger chain Byron, who had announced at the start of 2018 that it had also restructured its business with the use of a CVA. Further to this, a domino effect appeared to set in with other retailers such as Mothercare, Carpetright, House of Fraser and New Look having CVAs approved, with the intention of restructuring their leasehold obligations which would have included closing sites and obtaining rent reductions. Similarly, restaurants such as Jamie’s Italian, Carluccio’s and Prezzo had also had CVAs approved, although one word of caution – not all CVAs will be a success, as seen with the examples of Toys R Us, House of Fraser and BHS who initially took out the option of a CVA before falling in to administration a short time later.

Within a CVA the tenant company can restructure its lease obligations on a mass scale, without the need to negotiate with each individual landlord. The added benefit is that a CVA can also reduce the other real estate overheads of a company and facilitate the closure of unprofitable stores, even if an individual landlord does not approve of the CVA itself.

Although there is sometimes objection from landlords regarding the use of CVAs, the majority generally accept that it is a better option than an administration or a liquidation. However, there have been cases where certain landlord groups have become more vocal as a result of the volume that they perceive are CVA proposals targeted at landlords. One of the main issues raised by landlords is that certain proposals appear to have been issued in circumstances where the tenant is for example, not necessarily “on their last legs”. Their argument is that the CVA is simply intended to benefit the tenant’s shareholders – in many cases these are private equity firms. As a result of this objection, The British Property Federation (BPF) which represents numerous landlords, has requested an urgent government review of the use of CVAs. Nonetheless, whilst it is not entirely impossible that landlords could vote against CVAs, it is more likely that most will continue to be approved due to the greater benefits a CVA can have over an administration or liquidating a company.

Although a CVA would not suit every situation requiring a business turnaround, it certainly can be a useful option to consider for several retailers and other businesses who are struggling to cope with large lease liabilities. Its popularity has meant that numerous retailers and restaurants have been able to ease the financial burdens imposed on their business and use it to help to restore overall profitability. With the rise in CVAs witnessed across the past 12 months, it will be no surprise to see other retailers and businesses being offered one in the near future.

How we can help
At PCR, we have a team of restructuring specialists who have experience in both putting CVAs in place and challenging their validity.

If you are a retail, restaurant or business owner and think that a CVA could help your business survive, then do get in touch with us and we can see if it really is the best option for you. If not, we may be able to advise you on other forms of business restructuring tools which are best suited to achieving a business turnaround. Additionally, if you are a creditor being offered a CVA, then we can also advise you on your possible alternatives.

For more information please contact our PCR Head Office on 0208 841 5252 or alternatively, you can email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

Ahmed Ali

Practice Development Executive 

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