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New Look CVA does not meet best practices standards, says BPF

Lauretta Roberts
26 August 2020

The British Property Federation (BPF) has said that New Look's proposed CVA, which was announced this morning, fails to meet its best practices standards.

New Look, along with Deloitte, has revealed a proposal in which it is attempting to secure zero rent on 68 of its stores along with turnover-based rent on 402 stores.

The retailer said that the move would relieve financial pressure on the business and help secure the future of more than 11,000 employees.

However the BPF said the proposal did not reflect its views and said that CVAs should not be used by retailers to permanently "rip up leases" but should be used to provide temporary respite for struggling businesses.

“New Look and Deloitte have launched this CVA with reference in their communications that the British Property Federation’s views are reflected in the proposal – this is not true. While New Look and Deloitte engaged with us and this resulted in some changes to the proposal, this still fails to meet our best practice standards for CVAs and contains terms that property owners will object to.

“CVAs should not be about permanently ripping up leases – they are supposed to be a temporary measure, as part of a wider rescue plan, to get a business back onto its feet. Property owners absorb significant losses during a CVA to support a business’ future, and in return expect the support measures within a CVA to come to an end upon termination of the CVA.

“New Look is using this CVA to permanently re-write its leases, this proposal is not about a time-limited rescue plan. Property owners are increasingly supporting turnover-based rent models underpinned by collaboration and transparency, but CVAs should not become a mechanism to enforce this. 

“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. CVAs, however, must not unfairly compromise property owners, who need to consider the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property," it said in a statement.

Creditors are due to vote on the latest proposal on 15 September. Should New Look gain approval its debt holders have agreed to inject £40 million into the business and reduce debts by around £440 million to £100 million.

New Look CEO Nigel Oddy described the CVA as an "absolute necessity" when announcing the proposal this morning. “COVID-19 has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behaviour from physical retail to online, which we have seen in recent trading.

“Despite this, we still fundamentally believe the physical store has a significant part to play in the overall retail market and our omnichannel strategy.

“However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability," Oddy said.

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