Addi Speirs, a partner in Addleshaw Goddard’s restructuring team, says more businesses are looking for alternatives to administration

Footfall is in freefall on the high street, as internet savvy shoppers look elsewhere to ease the squeeze on their pockets.

Retailers have been extending promotional offers to try and lure customers across the threshold. Walk past your local shops and you’ll see a range of discounts on offer – but this hasn’t been enough for some outlets.

The festive period, which is usually a time for businesses to bolster profits, generated poor results for struggling retailers, signalling challenging times ahead.

New Look, Carpetright and House of Fraser, to name a few, have looked to alternative means this year to avoid formal insolvency proceedings and stay afloat. Company Voluntary Arrangements (CVAs), one such alternative, is an increasingly common way to manage a company’s debts.

A CVA allows a company to pay its debts at a proportion of the amount it owes creditors, or to come to an alternative arrangement, such as rent reduction. Carpetright, for example, is planning a CVA that closes 92 of its worst performing stores, and has asked for rent concessions on another 113 sites.

This approach is often considered for businesses with a large number of properties with long-term leases, the cost of which may not be viable in today’s market. A CVA allows a company to restructure its lease obligations on a mass scale, and often provides a better return for landlords and greater flexibility than formal insolvency proceedings.

There can be early indications that a business is struggling. For landlords of these companies, a close eye should be kept on dilapidations, as failing businesses may not be able to manage the upkeep of the property, and full recovery for these costs may be challenging.

Landlords should also ensure all rent payments and rent reviews are up to date, allowing no arrears to build up – including service charges – which are often missed. It is not guaranteed that landlords will receive payment for all arrears once CVA proceedings begin, although this will form part of the claim.

When it comes to drafting a CVA, terms must be agreed by all creditors, with a 75 per cent majority (in terms of value) required for it to be passed, which is a high threshold. Terms should be reviewed carefully and promptly to assess impact – every CVA is unique, and in theory, creditors can be treated slightly differently as long as the overall CVA presents a viable recovery plan.

It is also important to remember that once approved, a CVA will bind all unsecured creditors, regardless of whether they voted for or against the proposed terms, and so it pays to take action early.

CVAs are a useful tool for retailers to buy time and consider the next steps, but it is vital for all creditors, including landlords, to consider ‘Plan B’. Arrangements can mark a turning point in a company’s fortunes, but it may also lead to the inevitable, insolvency.

Retailers may have fallen on hard times, but CVAs can act as a lifeline for our struggling high streets.