The Insolvency Service's report on the impact of CVAs on commercial landlords, particularly in the retail and casual dining sector, follows concerns from landlords that compromises are unfairly affecting them. The research was based on 59 CVA proposals. 

Key findings

• Landlords are, broadly, equitably treated compared to other classes of unsecured creditors. 
• However, the level of compromise for landlords was based only on the rent payable for the CVA period and did not account for other amendments, such as moving to turnover rent.
• Key checks and balances are in place (eg appointment of the nominee and creditors' voting rights). 
• The estimated return for creditors in the CVAs was better for unsecured creditors than the alternative (insolvency) procedure. 
• Landlords can challenge a CVA by voting against the proposal, exercising a break option (a CVA cannot vary a landlord's right in the lease to re-enter its premises) or challenging the proposal in court. 

Improvements 

Changes could be made to provide greater clarity and improve stakeholders' understanding: 

• CVA proposals could include: executive summaries, standard tables and post CVA balance sheets. 
• The Statement of Insolvency Practice relating to CVAs (SIP 3.2) could include a requirement for prior consultation with the British Property Federation on behalf of their members. 

The exclusion of uncompromised creditors from voting could further address criticism around vote "swamping" although this would require further consultation. 

Key Takeaways 

While improvements to provide clarity and better consultation for creditors will be welcomed, the Report's limited suggestions for reform are likely to be a disappointment to commercial landlords. It remains to be seen whether further consultation will take place. 

Find out more 

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.