British Property Federation says Select CVA is “deplorable”
The British Property Federation (BPF), has criticised high street fashion chain Genus UK Ltd, trading as young women’s fashion retailer Select - which has 49 UK stores - for launching its third company voluntary arrangement (CVA) in as many years, “none of which demonstrate a credible rescue plan.”
The BPF supports a rescue culture for businesses in distress, including the CVA process, but it believes this latest CVA proposal fails to meet the best practice standards for a CVA, leaving local authorities and property owners “unfairly compromised.”
CVA's are designed to support struggling businesses back on their feet, with store closures and rental discounts forming part of a wider restructuring to safeguard the business’ future. However, Select has failed to engage with the BPF ahead of its latest CVA launch.
The BPF also says it does not specify the duration of the CVA required to save the business, and it provides Select with new rights to break leases early that have benefitted from rental discounts and restricts property owners’ rights to break leases, preventing owners from being able to find new tenants.
Additionally, Select has proposed to pay no rent at all for 49 stores affected by the CVA.
The CVA process often discounts property owners’ claim for the purposes of voting on the CVA. Any such discount discriminates against property owners, but most recent CVA cases have reduced historic discount levels to 25%, compared with Select’s proposed 75%.
Melanie Leech, chief executive of the British Property Federation, comments: “This is Select’s third CVA in as many years, with the second one terminating early when they failed to meet the obligations of the proposal.
“It is deplorable that the business is now again attempting to exploit the CVA process by proposing to pay no rent for many of its stores and, in giving little indication of how long the CVA will actually last, failing to produce a credible rescue plan.
“To suggest that the business should be given new rights to break leases on stores that have benefited from rental discounts is outrageous. This is opportunistic and simply asking property owners to absorb significant losses with no commitment that this investment will be worthwhile.”
Leech says that Select has also failed to treat property owners as economic partners, and that any CVA proposal should go through the BPF’s Insolvency Committee to provide opportunity for a constructive conversation about a business’ future.
She adds: “We understand the challenges facing the retail, hospitality and leisure businesses on our high streets, which are at the sharp end of the COVID-19 pandemic.
“CVA's, however, must not unfairly compromise property owners, who need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property. We expect that directly affected property owners will find these proposals unacceptable.”
The total claim of non-critical creditors in Select’s latest CVA, including local authorities but excluding property owners, is just over £19 million, of which those creditors will only receive £971,845 (5%).
Local authorities are owed over £6.5m, but this proposal suggests they will only receive 5% of this, which is £325,000.
HM Revenue & Customs is owed over £4.1m, but it is also due to only receive 5% – circa £206,000.