Landlords in warning over retailers' insolvency deals

Published 27th Apr 2009

JJB wins praise as it seeks a Company Voluntary Arrangement but landlords fear others could use the scheme to 'threaten suppliers'



Commercial landlords have called for tougher controls on the way insolvencies are managed to prevent firms using administrators "to threaten suppliers".

The landlords' demands come as sports retailer JJB is expected to win their support for a Company Voluntary Arrangement tomorrow which should cut its rent bill and prevent it going into administration. If the chain wins the 75% support it needs at its creditors' meeting in London it will be the first time a major company has managed to agree a rescue CVA.

The British Property Federation, which represents some of the biggest landlords, praised JJB and its advisers KPMG for "the open and honest manner in which proceedings have been carried out".

In the CVA process landlords are asked to cut rents to ensure a tenant company's survival, when shareholders and other suppliers do not have to make any similar sacrifice. The BPF therefore warned that demands for CVAs must be fair.

Liz Peace, chief executive of the BPF, said: "We are concerned that some insolvency practitioners are using CVAs not just to threaten suppliers into ripping up contracts but also as cash cows to make large sums of money from other people's misery. We want to see some safeguards"

Her comments were echoed by Francis Salway, chief executive of Land Securities, whose portfolio includes the White Rose centre in Leeds and Gunwharf Quays, Portsmouth: "A CVA designed to assist with the survival of a business that would otherwise fail would generally be welcomed by landlords," he said.

"It is clearly in our interests for our tenants to survive, thus reducing any potential exposure to empty rates. However, we need to ensure that such practices are only entered into when a firm is at the point of insolvency and not before." Land Securities is one of JJB's army of more than 200 landlords.

The BPF said landlords felt unfairly criticised over the collapse of Stylo. The shoe chain had requested lower rents and when the CVA was denied, it went into administration with the loss of 2,500 jobs. However, the landlords insist that in refusing that CVA they were acting to protect the interests of their own investors and shareholders, which include an array of pension and life funds.

John Richards, chief executive of property giant Hammerson, whose developments include Cabot Circus in Bristol and Birmingham's Bullring, said: "A CVA can be an important mechanism to rescue a business but it has to be used fairly. [Tenants] have to be prepared to be fully transparent and present all their figures. This has not always happened."

JJB's creditors' meeting takes place at the Royal Horticultural Halls tomorrow morning, but the outcome of the creditors' vote may not be clear until Tuesday. The retailer is proposing a settlement with the landlords of 140 stores it has closed – offering them a share of £10m – and wants the owners of 1250 other outlets to agree a switch from quarterly rents to monthly payments.

Source: ' Guardian '

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