Against a background of economic uncertainty, compounded by “Brexit” and a monumental shift in consumer behaviour, the high street continues to be a challenging place to trade. This has led to inevitable company failures and reshuffles as retailers look to adapt to a rapidly changing landscape.
Whenever we learn of a company failure, or the prospect of one, particularly if it’s high profile in nature, we hear about the risk to jobs, suppliers not being paid and shops being closed.
Not so long ago, it was the use of pre-pack administration in cases such as JJB Sports, Blacks Leisure and La Senza that were making the headlines. More recently it is Company Voluntary Arrangements (“CVAs”) and their use in cases including House of Fraser, Toys “R” Us and Byron, that have been making headlines.
A CVA requires agreement of 75% of the company’s creditors and will bind all unsecured creditors irrespective of whether they voted for the CVA. In the short term, a CVA can help protect from unwanted and often damaging publicity associated with other insolvency regimes, thereby preserving value for the creditors and in turn can assist in mitigating staff redundancy and contract terminations.
As a result, and in such a challenging market, it probably comes as no surprise that recent government statistics show there has been an 85.5% increase in companies employing CVAs.
Use of a CVA means that control of the company remains in its own hands, albeit only with buy-in from 75% of its creditors. However, as with all of these processes, there will be parties who feel that they have lost out.
An example of this was the action by a group of landlords, that almost made it to the Court of Session in Edinburgh earlier this year, against House of Fraser, alleging they had been ‘unfairly prejudiced’ during the CVA process.
This group of landlords has been one of many in recent months who are of the opinion that their voices have been ignored throughout the process and that the procedure itself is a backhanded way of avoiding further payment on commercial leases.
CVAs may not be the most viable or palatable option in every case, but for the meantime at least, they provide potential lifelines to some of the nation’s favourite businesses and stores and their employees, and are likely here to stay.
It may be some time before Scotland and indeed the wider United Kingdom once again understands what their relationship with the high street looks like. Until that happens, the events of the past few years look set to remain common place.
Scotland has a dynamic Real Estate sector but both landlords and tenants will need to continue to adapt and search for the opportunities that arise out of some of the changes to the legal and economic landscape we have been experiencing in recent months.
Ross Webb is a partner in dispute resolution at Aberdein Considine
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