Number of retail sector CVAs jumps 150% in the last year

CVAs help avoid a Wilko-style collapse
CVAs gaining ground on Restructuring Plans which are seen as more expensive

The number of retailers that have entered a Company Voluntary Arrangement (CVA) has jumped by 150% from 4 to 10¹, up from four in 2021/22 says international law firm, RPC.

A CVA allows a business to restructure or cut its debts, if it can reach an agreement with a majority of its creditors.

Finella Fogarty, Partner and Head of Restructuring & Insolvency at RPC says that CVAs allow a retailer to cut its debt burden, including rents, without having to go into administration which may lead to more dramatic losses for creditors.

Within the retail sector, CVAs have been used to reduce the rent that retailers pay landlords or to vacate some of the space leased. The fall in rental values of many retail properties means that many retailers are paying rents that are far more than the market value.

Finella adds: “CVAs are seen as good way to fix a business that is struggling under too much debt. By allowing a business to survive, it helps avoid a Wilko style collapse where landlords were left with 300 vacant stores.”

“Retailers argue that the traditional lease terms in the UK commercial property market make it very hard for them to reduce their property costs in any other way.”

Finella explains that one reason why CVAs have been on the rise is that they are seen as a less expensive and simpler way of rescheduling a business’s debts. This is compared to Restructuring Plans which were introduced as a COVID-related method for businesses to restructure debt.

Finella concludes: “Restructuring Plans are a court process, which means that they can be slower and more expensive than a CVA. Speed and cost are obviously factors – on that basis that CVAs are normally preferred.”

COVID and the rise in interest rates have forced many retailers to look both at their network of stores and their debt levels.

¹ Year end June 30.