Company voluntary arrangements

Your contractual rights under the lease will be ascertained by the terms of the CVA. You are likely to receive payments under the CVA and will still have the right to forfeit the lease for some breaches.

What is a CVA?

A CVA is an ad hoc legally binding agreement between a company and its unsecured creditors – of which a landlord will be one – which provides for the repayment of some (or sometimes all) of its debts over an agreed period. It is intended to assist with the rescue of the company and is overseen by an insolvency practitioner.

A CVA will bind anyone (including dissenting parties) entitled to vote at the creditors meeting or anyone who would have been entitled had they received notice of the meeting. A CVA does not affect the rights of a secured or preferential creditor unless they consent.

A CVA (or any modification of it) will be approved if three-quarters or more (in value) of the creditors responding vote in favour of it. However, the decision will not be made if more than half of the total value of the unconnected creditors vote against it. The shareholders also vote on the CVA by way of simple majority. If the results differ the creditors’ vote prevails, save that this can be challenged by a shareholder within 28 days by way of application to the Court. A creditor who feels unfairly prejudiced or that there has been a material irregularity can also challenge the CVA.

A landlord will be a creditor for the purposes of a CVA both in respect of any unpaid rent when the CVA is proposed and also any future rent due under the lease.

The implementation of a CVA does not automatically result in a statutory moratorium, but often it will be combined with administration where there will be a moratorium.

The Corporate Insolvency and Governance Act 2020 has introduced a new standalone moratorium procedure, which a company could consider obtaining while it pursues a CVA. Under the new standalone moratorium, the company will have an initial 20-day period during which it is protected from legal or enforcement action and from forfeiture proceedings.

Can I recover rent arrears?

The right to recover past rent will generally be substituted, on the approval of the CVA, with the right to receive payments under the arrangement.

Can I forfeit the lease for non-payment of rent?

A landlord will be unable to forfeit in respect of past arrears, because such arrears will have been dealt with as part of the compromise arrangement under the CVA. However, the landlord’s right to forfeit as a result of a breach of the compromised rental arrangements put in place by the CVA will remain. In addition, an arrangement preventing or severely restricting the landlord from exercising forfeiture rights may be open to challenge under s.6 Insolvency Act 1986 on grounds that it is unfairly prejudicial to the interests of the landlord.

What can I do?

You may be able to pursue a guarantor (including a former tenant), as guarantees are not automatically released by the approval of a CVA. However, the concept of a CVA approving a guarantee release is possible, so, the extent of the guarantor’s ongoing obligations may depend on the wording of the CVA. The terms of the guarantee itself should also be checked to ensure it has not been compromised by the CVA.

You may be able to draw down on any rent deposit that is held and you should also review the wording of any rent deposit deeds to check if you can ‘top-up’ any reduced rent payments to be made under the CVA.

Rights in relation to Commercial Rent Arrears Recovery (“CRAR”), suing for rent and diverting rent from a sub-tenant should be considered in the context of the CVA.

Please note the above does not cover the temporary restrictions in place at the time of writing preventing landlords taking certain steps to enforce their rights.

Key terms

Company Voluntary Arrangement: Collection of terms agreed between the company and its unsecured creditors which is managed by a licenced insolvency practitioner.

Statutory moratorium: Prevents enforcement action against the tenant (e.g. enforcement of security and all legal process) without the consent of the Administrator or leave of the Court.