Landlords vs CVAs: The battle of UK retail

CVAs have been in the news again recently as a number of High Street retailers have invoked the procedure to stave off administration.

Although landlords have voiced fairly negative views of CVAs, ultimately, pragmatism triumphed as landlords accepted the House of Fraser proposals

Era ends as House of Fraser to axe 31 stores and 6,000 jobs

The 169-year-old department store chain accepts CVA as part of rescue deal, But away from the High Street, CVAs remain as unpopular as ever here in Scotland

2017 292 3
2016 346 13
2015 364 4
2014 554 14
2013 571 16

I seem to be in a minority of one, but it saddens me that such a powerful and flexible restructuring tool has not found favour here. No other insolvency process more fully embraces the rescue culture than a CVA.

Directors can put forward any proposal they wish. The only restriction (besides illegality!) is that they cannot propose a compromise of a secured debt – so debts secured by standard security, floating charge or a leasing or HP agreement – without the consent of that lender. Small companies can take advantage of a statutory moratorium to provide a breathing space to fine tune proposals or start the organisational restructuring which often has to accompany the financial restructuring provided by the CVA.

So why haven’t we embraced the small company CVA in Scotland?

Many professionals say they don’t work, and research which was recently commissioned by R3, the body representing the restructuring profession, seems to back that up. That research identified 65% of CVAs which commenced in 2013 as terminating without achieving their stated aims.

But 18.5% successfully completed and a further 16.5% were ongoing. From my own experience of CVAs, even those which do not complete deliver a better outcome for creditors than either administration or liquidation.

RESTAURANT NIL 50p in £ Secured

16.6p in £ Unsecured

RETAIL 10p in £ 42p
SERVICES 12p 32p


CVAs are not an easy option. Many do fail.

So what factors lead to success?


My advice to directors is to consider a maximum duration of 36 months. Most CVAs depend to some extent on contributions from cash flow. It’s unrealistic and unhelpful to fetter cash flow for longer – all this means is that the company can’t invest, can’t adapt to change, whether technological or otherwise, in its market space.

Besides, forward forecasting for more than 3 years for companies at the small end of the SME spectrum becomes largely a matter of guess work!

Management Commitment

Implementing a restructuring plan entails making some hard decisions so the commitment and dedication of the management team is vital. In my experience, that often comes from the desire to preserve reputation and a sense of duty. Most directors entering into a CVA have a desire to preserve their good relationships with employees and suppliers, many of whom have worked alongside them for a number of years.

Cause of Distress

When assessing whether a CVA might work, I look to establish whether there is a sound core business. If a business is in terminal decline, because its market has moved or for some other strategic reason, it is not an obvious candidate for a CVA. If, however, it has suffered a significant bad debt or some issue in its supply chain, the financial restructuring of a CVA can make the difference between survival and failure.

I believe that, used wisely, CVAs are a useful tool in the armoury both of insolvency professionals and company directors.

If you would like advice on CVAs, please contact Maureen Leslie.