The use of Company Voluntary Arrangements (CVAs) by retailers facing cashflow difficulties, instead of administration or insolvency procedures has become more commonplace over recent years. To be successful, several hurdles need to be cleared including 75% of creditors by value, voting to support the proposal. For many retailers the majority of creditors are their landlords.
Typically a CVA proposal will incorporate the closure of a number of unprofitable stores and/or reduced rental terms. It is a fine balance for the operator to get right though. If they cut too deep landlord support evaporates, but if they do not cut deep enough the re-structuring isn't the game changer it needs to be. The process is controversial with landlords, whilst solvent companies often call foul. One chief executive recently quoted "this idea that CVAs save jobs is ludicrous, it is postponing and dragging out a process that needs a much faster recycle". He has a point, because the evidence of retailer longevity following a CVA is hardly compelling.
When considering CVA proposals, landlords need to think very carefully on whether supporting a business is actually in their best long-term interests. The short-term benefits may look favourable, but letting markets change quickly and the opportunities to re-let space that may have existed at the point of the CVA may not be there if the same business collapses at a later stage. Slowing the process of retailer evolution can backfire.