The British Property Federation (BPF) is demanding an urgent government review of the Company Voluntary Arrangement (CVA) process.
This follows the recent upsurge in CVAs from retailers such as House of Fraser, Mothercare, New Look and Select.
The BPF has engaged with its members on the appetite for action on CVAs, as previously revealed by Drapers.
The industry body said the CVA process is now being “mis-used”, which risks undermining the UK’s global reputation and deterring much-needed investment into town and city centres.
In a statement, the BPF said: “We support the proper use of CVAs in order to help businesses in genuine distress and are keen that CVAs continue to achieve these objectives. There is, however, increasing frustration about the practice of some recent CVAs. The issues include: lack of transparency; unfair discrimination between different creditors and the lack of regulation to ensure CVA’s are used appropriately and to drive good practice.
“The BPF therefore calls on government to conduct an independent urgent review of CVAs.”
In order to restore confidence in the interim, the BPF said it is advocating the following immediate steps:
- CVAs affecting more than five outlets are referred to an independent third party for review. The Pre-Pack Pool could perform such a function.
- The Insolvency Profession and the BPF work together to codify what is good practice in terms of voting rights and voting structures for CVAs.
- Insolvency professionals follow BPF best practice guidance on engagement with property owners as early as possible in the CVA process.
BPF chief executive Melanie Leech said: “The CVA process is intended to be part of a comprehensive business recovery plan. Property owners, looking after savers and pensioners’ money, will support businesses who demonstrate this commitment but must protect those pensioners against unfair action that penalises their interests.”
Industry body, the British Retail Consortium (BRC), has also issued a statement regarding its position on CVA’s. It calls for retailers and landlords to work closely together in what is a challenging period for the UK retail industry as a whole.
The BRC said: “Entering a CVA is a last resort when the only other option is administration, where consumers and employees are the biggest losers. CVAs are a form of insolvency and with the endorsement of a minimum of 75% of creditors, they allow a business to take emergency steps to avoid the loss of jobs and to save some shops from closure. They can only be used in the most serious circumstances with advice from professionally qualified practitioners.
“Too often retailers are stuck in leases with upward-only rent reviews requiring them to pay more than the market rent. Retailers and landlords should work closely together to avoid unnecessary closures and administrations during this unprecedented period of change in the retail industry.”
The BRC said there are nearly 2,500 fewer retail stores in the UK than there were three years ago. Since 2014 there have been over 3,200 retail insolvencies in the UK. Industry profitability is falling, net profit margins are now 3-5% of retail sales, down from 6-8% over the past decade.