Covid-19 – dealing with the commercial consequences

The retail and hospitality sectors were already reeling from the twin assaults of online competition and Brexit. News that the UK response to Covid-19 is to move from containment to delay suggests a third significant adverse driver to footfall in the immediate future.

With any restriction on movement, the ability to meet and socialise, or indeed simply to shop, the impact on tenant cash-flow may be more significant than any short-term measures announced by the new Chancellor in yesterday’s budget. Even a return to historically low interest rates might not be enough for cash-strapped retail tenants to survive.

Informal postponement discussions with bankers and landlords would of course be one option open to any property based retail business. As the quarter day approaches, there is however one existing re-structuring tool available that should not be over-looked; the company voluntary arrangement (CVA).

Although the CVA fell out of favour in an era of easily accessible administration processes in which the object was to re-acquire the underlying business, there is a flexibility in a typical retail CVA that allows a strong underlying business to continue with the brand, management structure and existing equity.

A successful retail CVA will require detailed management projections for creditor review, and an open approach from both the Company and its creditors to the debt and continuing operating costs that are to be compromised in the CVA.

Although there are powerful vested interest groups for which a retail CVA is anathema, the choice of failed retail chain, and an empty space with rates consequences, or a continuing business even if a rent reduction is required, can drive successful landlord engagement.

To discuss CVAs in further detail, please contact Simeon Gilchrist or Head of Restructuring, Ali Zaidi.

 

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Covid-19 Resources

• The current Government guidance for employers on Covid-19
• Covid-19 – Lease advice for commercial tenants
• Coronavirus – General construction considerations
• Coronavirus – An Employer or Contractor Risk?
• Coronavirus – Practical considerations for employers

 

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