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CVAs on the rise - lessons from the BHS story

House of Fraser is the latest name to be added to the growing list of retailers considering or announcing CVAs. In this context, the recent High Court decision concerning the BHS CVA couldn't have come at a more apposite moment.

In the BHS case, the High Court considered whether landlords of former BHS stores could claim the full amount of rent due to them as an administration expense. Ordinarily, this should be uncontroversial but, here, the landlords had previously agreed to a reduced rent under the terms of a CVA. The CVA provided that the reduction of rent would be deemed never to have happened if the CVA was terminated. The CVA was in fact terminated and the Court sided with the landlords, rather than the liquidators, and permitted the recovery of the full backlog of rent.

Landlords who are party to (or about to enter into) similar CVAs will be glad to hear that the terms of the BHS CVA were enforced and were not set aside as a penalty or otherwise. Liquidators and the wider creditor base may look less favourably on the landlords' preferential position.

Wright and another (LIquidators of SHB Realisations litd) v The Prudential Assurance Company Ltd [2018]

This year has been dubbed as ‘the year of the CVA’ by analysts as a number of high street brands have announced store closure programmes and administrations.
Specialist floor retailer Carpetright is the latest casualty.

Other chains affected include Select, Bargain Booze, Toys R Us and Maplin, all of which have struggled to survive against the backdrop of a changing retail landscape.

The fashion sector has similarly struggled against online competition with high street favourite New Look also announcing a CVA and 60 store closures.

Troubles have extended to the restaurant world, with Jamie’s Italian, Prezzo, Carluccio’s and Byron among the chains that have been forced to close”