British Property Federation: “Select CVA is deplorable”

High street fashion chain Genus UK Ltd, trading as Select, has launched a Company Voluntary Arrangement (CVA) that fails to meet the British Property Federation’s (BPF) best practice standards for CVAs.

The BPF supports a rescue culture for businesses in distress – including CVAs, which were designed to support a struggling business back onto its feet, with store closures and rental discounts, as part of a wider restructuring to safeguard the business’ future.

The CVA process, however, is increasingly being used by businesses to simply walk away from debt owed to creditors, including local authorities, and to rip up leases freely agreed with property owners, without the business addressing its wider issues.

The total claim of non-critical creditors in Select’s CVA, including local authorities but excluding property owners, is just over £19 million – of which those creditors will only receive £971,845 (5%).

Local authorities are owed over £6.5 million, but this proposal suggests they will only receive five percent of this – circa £325,000.

HM Revenue & Customs is owed over £4.1 million, but it is also due to only receive five percent – circa £206,000.

With property owners absorbing significant losses via CVAs, it is widely accepted that any business proposing a CVA should engage with the BPF’s Insolvency Committee ahead of launching it. This improves understanding of property owners’ concerns and provides property owners with some reassurance that the business is committed to becoming financially sustainable.

Select failed to engage with the BPF ahead of its CVA launch and the proposal also unfairly compromises property owners. It does not specify the duration of the CVA required to save the business, it provides Select with new rights to break leases early that have benefitted from rental discounts and restricts property owners’ rights to break leases, preventing owners from being able to find new tenants.

Additionally, Select has proposed to pay no rent at all for 49 stores affected by the CVA.

The CVA process often discounts property owners’ claim for the purposes of voting on the CVA. Any such discount discriminates against property owners, but most recent CVAs have reduced historic discount levels to 25% compared with Select’s proposed 75%.

Melanie Leech, Chief Executive, British Property Federation comments:

“This is Select’s third CVA in as many years, with the second one terminating early when they failed to meet the obligations of the proposal. It is deplorable that the business is now again attempting to exploit the CVA process by proposing to pay no rent for many of its stores and, in giving little indication of how long the CVA will actually last, failing to produce a credible rescue plan.

“To suggest that the business should be given new rights to break leases on stores that have benefited from rental discounts is outrageous. This is opportunistic and simply asking property owners to absorb significant losses with no commitment that this investment will be worthwhile.

“Select has also failed to treat property owners as economic partners – any CVA proposal should come to the BPF’s Insolvency Committee to provide opportunity for a constructive conversation about a business’ future.

“We understand the challenges facing the retail, hospitality and leisure businesses on our high streets, which are at the sharp end of the Covid-19 pandemic. CVAs, however, must not unfairly compromise property owners, who need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property. We expect that directly affected property owners will find these proposals unacceptable.”