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Archive for March, 2016

Stay of Execution for BHS?

The financial problems suffered by BHS, long known to the British public as British Home Stores, have become public.  It sought landlord acceptance of substantial rental reductions on many of its stores or, it was claimed, the company would go into administration.  The rental proposal was put to creditors through a CVA (Company Voluntary Arrangement).  It was reported in the press on Wednesday 23 March 2016 that creditors, including landlords, have accepted the proposal.  It will leave many landlords with a shortfall on their rental income.

But what is a ‘CVA’ and what would it have meant if the company had gone into ‘administration’?

A CVA is an arrangement between a company and its creditors.  It generally binds its creditors, unless secured e.g. a mortgagee, although secured creditors can choose to participate in the arrangement.   The company initiates the procedure and appoints an insolvency practitioner to supervise the agreement reached.  The supervisor will call together the creditors to discuss and vote upon the company’s financial proposal.  The arrangement does not require unanimous creditor support - so long as supported by creditors with 75% in debt value attending the meeting, the arrangement is binding on all creditors.  Property interests do not pass to the supervisor - they remain vested in the company.

If a company is placed into administration, the administrator will manage the company’s affairs, including the company’s property interests (although the properties remain vested in the company).  The prime aim is to rescue the company as a going concern.  During the period of administration, there is an effective moratorium on creditor’s enforcement action taken without the administrator’s or the court’s consent.  In such circumstances, landlords would be unable to recover their rent.

Press reports declare that BHS still has to restructure its pension scheme, which is reported to have a very substantial deficit, and to fund continued trading and a turnaround plan.  The CVA has, however, given the company what the Guardian calls ‘a stay of execution’.