CVAs failing to save struggling retailers says new report
A report from Colliers, a commercial property adviser, has questioned the value of company voluntary agreements (CVAs), the controversial restructuring solution used by many retailers.
According to Colliers, more than half of the 23 large companies which opted for a CVA since 2016 have, nevertheless, fallen into administration. These include big retail names like BHS, Mothercare, Austin Reed and Jamie’s Italian.
The form of insolvency rose in popularity in recent years as growing business costs and changing consumer behaviours undermined retailers’ ability to compete with online rivals.
The proceeding, which must be approved by at least 75% of company creditors, allows financially challenged businesses to renegotiate their debts. It has become very popular on the UK high street, as retailers can use it to renegotiate rents and close underperforming locations.
“CVAs were designed to help struggling businesses, but they do nothing to address high debt levels, which often require restructuring, refinancing or a debt write-off," David Fox, co-head of retail agency at Colliers, told The Times.
“For many brands, the CVA fails. It is clearly not a mechanism that can be guaranteed to deliver a long-term viable solution. It merely just delays the inevitable future failure and pushes out the problems for the next couple of years, creating even more polarisation in the marketplace.”
The rapid rise of CVAs has been met with backlash from landlords and property owners, who are seeing tenants retreat from the high street amid tough trading conditions.
Meanwhile, scores of large chains are planning to close stores when leases expire, in further efforts to downsize their portfolios.
The CVA wave has had a damping effect on the property market, with shopping centre owners including Intu, Hammerson and Westfield blaming the mechanism for rising vacancy rates and a fall in the value of their assets.
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