The Lorenz Corporate Recovery Consultancy Team, have engaged with Landlords, especially in the hospitality and retail sectors, since the onslaught of the Covid-19 pandemic, since just before March Quarter Day this year.
We have and are still working on agreeing deals, to try “save” many beleaguered operators.
Some major lessons are to be learned by the Court’s decision in New Look saying:-
1. The party seeking the CVA must demonstrate that they are unable to maintain cash flow, to pay rents going forward.
2.  That a Tenant should actively engage with their Landlords, to endeavour to agree their support, under the Government moratorium.
We have encountered  many Landlords who only seek to defer rent, as opposed to offering rent holidays, and , unfortunately, that just kicks the can down the road, building up the debt, when a delayed CVA will give the Landlords more voting power, with their debt having been amassed, so as to overturn the 75% of voting creditors needed, for the CVA to be successful.
3.  That in view of New Look’s cash position, their CVA was premature and, accordingly, the timing of the event should be carefully planned to occur, after negotiations with Landlords had been exhausted.
The CVA is the only weapon which the retail, and the hospitality sector can use, to keep their premises, if they will not be able to afford the debt, which will have accrued to the Landlord/Landlords, when the moratorium comes to an end in April 2021.
So, between now and April 2021, is the time for such companies to look at the CVA as the “magic wand” to save their Companies, rearrange their leases, and have a chance of survival, thus minimising unemployment which rates will go through the roof, when Landlords force them into a liquidation.
CVA, invented by Sir Kenneth Cork of Cork Gully in the 1980s, was the middle route to avoid compulsory liquidations, stemming mass unemployment.
The Debenhams case does give Landlords some comfort with regard to their ability to take forfeiture, especially if there is a CVA or other insolvency clause, within the lease in question.
It does not seem that New Look lost the case in an endeavour to force through a CVA – it was just premature in respect of their cash position, and the fact that they did not make enough effort to engage with Landlords.
Most operators, especially in the hospitality sector, do not have the luxury of a multi-million pound war chest, and therefore the New Look decision, will not have a substantial impact on many in the bar, club, restaurant and casino industry, whose takings – unlike retailers – are solely dependent on visitors to their venues.
Retailers enjoy the luxury of online sales, and many shoppers visiting New Look, will then choose what they want, go home, and buy online.
The leisure industry is in absolute turmoil, as indicated in our article in Big Hospitality.
So, in short, we would advise parties who are looking at a CVA not to be discouraged by the New Look decision, but to be more concerned about the Debenhams decision, whereby Landlords who are completely dissatisfied with the CVA proposal may not just have to challenge it in Court, as being unfairly prejudicial to them, but could seek to rely on the forfeiture clause, to get the premises back, and relet them.
Commercially speaking, that may not do them any good, because better the existing operator, if they have paid their rent on time in the past, than trying to seek a new Tenant, in a new market, where leisure and hospitality rents can do nothing but head south, when the market reopens.
Tier 4 lockdown in London has devastated the most important weeks of the year in the club, bar and restaurant market, and unless Tenants, Landlords and Bankers get together and sort out their differences, then, when history looks back at the effect of the CVA on the leisure industry, as we knew it, the headline may be “The Survival of the Few”.
Click here to read the full article in The National Law Review.