Property owners are calling for action on company voluntary arrangement (CVAs), following controversy surrounding plans by Mothercare, House of Fraser and other retailers in which landlords face substantial losses.
Industry body the British Property Federation (BPF) is understood to be engaging with its members on the appetite for action on CVAs. It is believed to be meeting this week to discuss the wider implications and next steps.
Property sources have told Drapers that the key issue is the voting rights of landlords during a CVA. Even though property owners face proportionally much greater exposure to financial losses during a CVA, their voting rights are equal to other creditors.
“We’re probably close to seeing some sort of legal challenge from landlords,” one property source told Drapers. “There will be pressure on the government. The value of the landlord’s vote should be reassessed. There should be a change in the balance of power.”
Mark Williams, president of shopping centre body Revo, said: “We have written to the [housing, communities and local government] select committee to ask for an examination of the assumptions that advisers make [when drawing up a CVA].
“It is not for us to dictate what advisers do, but it is our opinion that there have been some aggressive assumptions on the weight that different creditors receive.”
One fashion retail industry source agreed: “There is an issue with the CVA process and how it’s being used. It was designed to help keep afloat a sinking ship, not for businesses that are solvent. The structure of voting is very unfair for landlords.”
A retail property source added: “The CVA process has to be there if a retailer will definitely go into administration. But, if they don’t, there is a fine line between needing a CVA and using it to your advantage.
“Our industry is dependent on the structure that is in place: retailers signed up to leases. We value our schemes on the basis of the value of the leases we put in place. To break that structure is potentially a major concern.”
More than the required 75% of Mothercare UK creditors approved the retailer’s CVA proposals, which include the closure of up to 50 stores and rent reductions on a further 21.
However, it has since emerged that part of Mothercare Group’s CVA proposal was not approved, as a result of a discrepancy in voting noticed by KPMG, which oversaw the process.
Creditors last week voted separately on proposals for three subsidiaries of the Mothercare Group: Mothercare UK, Early Learning Centre and Childrens World.
Only 73.3% of creditors approved proposals for a CVA for Childrens World, which accounts for 21 stores operating under the Mothercare fascia.
Mothercare said it is “considering all options in respect of Childrens World as a legal entity”, adding that the CVA proposals and/or any restructuring of Childrens World are “not expected to affect the ordinary course of operations of Mothercare”, which continues to trade as a going concern.
Meanwhile, HoF has said it is still on track with proposals to launch a CVA this month, amid much contention from landlords.
The CVA is a condition of Chinese conglomerate C Banner’s purchase of 51% of HoF from its owner, Nanjing Cenbest.
Frank Slevin, HoF chairman, said the retailer “continues to have very constructive talks with our banks and other stakeholders, who are positive about the plans”.