Press Releases

04 April 2011

Company Voluntary Arrangements in Retail sector soar 15% in the last year

The number of retailers using company voluntary arrangements (CVA), a form of insolvency procedure, to renegotiate their debts has jumped 15% over the last year, from 41 in 2009 to 47 in 2010, says Wilkins Kennedy, the Top 22 accountancy firm.

Landlords often contest CVAs because they usually suffer worse losses than other creditors as a result of the restructuring of the company’s rental obligations. Some landlords are also concerned that CVAs are abused by retailers to break rental agreements and avoid paying debts.

The increase in CVAs has bucked the trend in insolvencies in the retail industry, which overall declined by 18% to 1,290 in 2010.

Anthony Cork, Director at Wilkins Kennedy, comments: “The first wave of the recession picked off the weakest retailers, though with disposable incomes being squeezed by inflation, it might still be a while before the retail sector hits the bottom.”

“So while insolvencies might have slowed down slightly, I expect that the increase in retail CVAs has yet to reach its peak.”

“Rents are a major overhead for retailers, which means that rescue plans tend to involve rent renegotiations and/or the disposal of unprofitable shops. This means that landlords invariably take the biggest hit.”

“Giving up leases that should have provided them with a revenue stream for up to 10-15 years is a huge concession for landlords to make. It exposes them to the risk of being stuck with shops they can’t re-let and for which they still have to pay business rates.”

“The fact that landlords are increasingly prepared to accept CVAs suggests that recent experiences have taught them that allowing a company to go into administration is an even bigger risk.”

JJB Sports’ second CVA in two years has again ignited the debate over whether CVAs have become an instrument for perfectly viable retailers to renegotiate their rental liabilities. But despite the bad press, Wilkins Kennedy says that CVAs have some benefits for creditors, which administration does not provide.

Explains Anthony Cork: “With a CVA, creditors have a clearer view of what they can expect to get back, and, most importantly, they get to vote on the proposal before it has taken place. In an administration, the creditors may find that they are notified only after a sale has been completed. This leaves them with a lot of uncertainty.”

“If creditors engage in a dialogue with a company via a CVA, they will probably get a better deal from it. They’re much more likely to recover more money from a business that is still a going concern than one that has ceased trading.”

Whilst an increasing number of creditors are open to discussing CVAs, many still prefer to put businesses into administration to get their money back.

Press Contacts:

Anthony Cork
Director – Restructuring & Recovery
Wilkins Kennedy
Tel: 020 7403 1877
Mob: 078 8060 1962

Fay Israsena or Nick Mattison
Mattison Public Relations
Tel: 020 7645 3636
Mob: 079 6076 8787