Wednesday 29th August, 2012

If you've wondered why this stage of the recession the UK is not beset by Woolworth's style closures across towns and high streets, it may well be due to the rise in a controversial new method of insolvency procedures, called Company Voluntary Arrangements (CVAs) whereby debts are renegotiated. According to accountancy firm Wilkins Kennedy LLP, the number of CVAs has jumped 32% this year from 699 to 924.

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 at Wilkins Kennedy comments: “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.

Travelodge is the latest debt burdened company seeking to slash its property bill through a CVA. In fact eight other hotel groups have undertaken CVAs in the last six months and other companies include Fitness First, JJB Sports, Blacks Leisure and Focus DIY.

However Anthony Cork went on to say that “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.”

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

Adds Anthony Cork: “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.”