JJB Sports announced on 27 April 2009 that the majority of its creditors had accepted a company voluntary arrangement (CVA) put forward by its insolvency practitioner, KPMG. The CVA is now lodged at court and, if there are no successful challenges, will become effective at the end of this month. The deal could secure the company's future by settling debts on 140 closed stores and allowing the retailer to re-schedule rent payments for its remaining 250 stores to monthly, instead of quarterly, in advance.
This comes less than 3 months after Stylo plc, which owned the footwear brands Priceless and Barretts, made a similar offer to its creditors which was rejected amid fears from landlords, who made up the majority of the company's creditors, that acceptance of the deal would open the floodgates to other retail chains in difficulties. However, the reality was that following rejection of the CVA, the company was subsequently placed into administration and income for the Stylo landlords ceased almost immediately.
CVAs are a rescue procedure for companies in financial difficulties under which a compromise or agreement is sought by the directors with the company's creditors. Operated by an insolvency practitioner, they are binding on all unsecured creditors once 75% (by value of debt) agree to their terms and can include a moratorium on action against the company.
CVAs differ from administrations in that they allow the company flexibility in the terms that it can offer to creditors to settle its debts whereas on administration all unsecured creditors are paid out on an equal share basis. This may have a particular effect on landlords of retail properties where more creative solutions (such as turnover rent) may be explored.
The JJB Sports deal may represent a significant shift in the attitude of landlords who, with the prospect of 50% vacant high street units already identified by RICS and PwC, may now be facing up to the harsh realities of recession by sharing the pain of retailers!
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