Company Voluntary Arrangements ("CVAs") have been in the news recently for all of the right reasons. The CVA proposal advanced by JJB Sports was approved by an overwhelming majority of creditors. This has allowed the survival of JJB Sports (JJB) in its current form and allayed fears that the company would be forced into administration or liquidation with consequent job losses and further detriment to creditors.
A CVA is a proposal by a company to its creditors whereby the creditors are asked to accept a compromise of the debts due by the company. A CVA can be a valuable tool in restructuring the affairs of insolvent or near insolvent companies.
In the specific circumstances of the JJB CVA, the particularly affected creditors were landlords. For the purposes of the CVA proposal, landlords were divided into two groups – "Open Shop Landlords" and "Closed Shop Landlords". The purpose of the CVA was to allow JJB to finalise its liabilities in respect of leases where, in the view of the management of JJB, it was uneconomic to continue to trade from those stores. Accordingly, the proposal was that Closed Shop Landlords accept a finite amount in full and final settlement of the liabilities under the lease. Open Shop Landlords (that is landlords of shops where trading would continue) were asked to accept that their rental payments would be made monthly, rather than quarterly, to ease the cashflow of the company going forward.
Although therefore it will be seen that Closed Shop Landlords were significantly worse off under the CVA proposal than Open Shop Landlords, the fact that even the Closed Shop Landlords overwhelmingly supported the CVA has indicated that commercial reality was a large factor for landlords.
If a CVA is not approved, there is always an underlying threat that creditors will be worse off under the alternative (invariably administration or liquidation) than if the CVA is accepted and successfully implemented. It is encouraging to see landlords accepting that a CVA proposal in the current market may be the best option out there.
It is highly likely that further retail chains in difficulty may make similar proposals in the future.