To CVA, or not to CVA...

A year or two ago I'm not sure many of us would have predicted that the biggest story in retail property was going to be a little known (other than to experts) insolvency procedure called a Company Voluntary Arrangement (CVA). But when you add a slightly nerdy sounding insolvency procedure to two of the biggest characters in retail, some of the High Street's best known brands and the negative sentiment towards the retail market, then you have the perfect recipe for bringing a niche subject to the mainstream media. But what of it? Being camped out with journalists from Sky, ITV, BBC and Channel 4 in various coffee shops across London over the last week may have been intriguing, and occasionally exhilarating, but has the profile of this issue been a blessing or a curse, and what next for the current CVA pandemic?

The truth is that nobody wants to be talking about CVAs (apart from the experts and fee earners of course!), and evidently their popularity is a symptom of what's happening in retail property at the moment, not the cause. At Revo, we have been clear and consistent about CVAs. When they were legislated for in 1986 they were intended to be an administratively less bureaucratic, and therefore less costly, method of coming to an arrangement with creditors to change the terms of a credit agreement to alleviate short term cashflow problems, and avoid administration - cash is of course king. According to R3, the body that represents Insolvency Practitioners (IPs), the vast majority of CVAs are between creditors and small and micro enterprises. However, in retail in recent years bigger companies such as Arcadia, Debenhams, Toys R Us, Jamie's Italian, Byron Burgers and many more have been using the procedure for large scale corporate restructures, with a focus on reducing their rental, and increasingly, business rates liabilities. In our view this is not an appropriate tool. The legislation was kept deliberately light touch, for the reasons above, which leaves the process open to abuse, not least in terms of the amount of detail that is made available to creditors, and the time given, to properly asses the financial position of the insolvent business. It is also a matter of fact, according to R3 and some IPs, that around 70% fail to last the duration of the CVA plan, often either ending up in administration or liquidation. According to some commentators only 15% of retail CVAs are successful. A further area that needs to be reviewed is why landlord's credit is 'unascertained' or 'unliquidated' and therefore subject to significant discounts, normally 75%. This directly feeds through to voting influence, and seems arbitrary and unfair.

Our organisation has retail, property owner and local authority members. As well as their advisors. We embrace, and aim to support and represent the collective community. Clearly it is everyone's best interests for sustainable retail businesses to survive. Investors, employees, suppliers, property owners, government and communities. And each party has a role to play in making this happen. But as I said on Radio 4's Today programme this week, each business in the supply chain also has a responsibility to their own stakeholders, whether it's pension funds and their customers, property companies and the other retailers operating successfully in schemes across the country, or local councils and their constituents.

The propaganda that started to flow from the Arcadia PR machine yesterday on landlords responsibility for 18,000 retail colleagues potentially losing their jobs was cynical, and unhelpful. But despite now claiming, fairly predictably, that the company was not near to collapse, Sir Philip Green sounded fairly conciliatory this morning (unless you were a journalist, or 'jealous' newspaper reader!), possibly even slightly humbled by the whole affair. How long this will last, and whether he will put his money where his mouth is and turn this business around is naturally a big discussion point which will run and run. My friend Mark Faithful has some fairly strong views on this! But importantly he is right about the need to leave swords at the door, and ensure there is more meaningful collaboration between property owners and occupiers.

As I understand it the Arcadia CVA did involve better engagement between owners and occupiers. Almost certainly because the complicated structure of the Arcadia group of companies meant the landlord influence over the vote was greater than is normally the case. But either way, if cash is king then collaboration is surely queen.

An area where this collaboration is most needed is on business taxation broadly, and business rates specifically. Government has not done enough to look strategically at this issue, and places up and down the country are suffering. We're continuing to lobby on this issue, most recently in our evidence to the Treasury Select Committee, and business rates and the merits of alternative forms of tax, including online sales taxes, along with other crucial challenges facing the sector will feature at our conference, Revo Liverpool 2019 between 18/19 September.

And the pandemic? Well clearly there are more waiting in the wings. In boardrooms up and down the land, even of the most solvent retail companies, executives will be challenged to explain why they are not using CVAs to accelerate the process of divesting from shops. Surely now is the time to be looking at reform of some of the most important policies and procedures that shape our market, including; leasing, tax, planning, insolvency, asset pricing, education, training and skills. All areas we're working on at Revo, and if you'd like to find out more, please get in touch at [email protected]