// BPF says flexibility & low cost of the UK’s insolvency framework has led to the “abuse” of CVAs
// It also says commercial landlords were disproportionately impacted by the arrangements
// BPF called for 5 key changes in the rules around CVAs processes
The British Property Federation has urged the government to overhaul UK insolvency rules to help tackle the “abuse” of CVAs.
In a letter addressed to corporate responsibility minister Lord Callanan, the industry group representing landlords said the flexibility and low cost of the UK’s insolvency framework has led to the “abuse” of CVA processes.
The BPF also said commercial landlords were disproportionately impacted by the arrangements that can be voted through by other less-affected creditors.
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The letter comes after the Covid-19 pandemic sparked a surge in CVAs across all sectors, including retail.
In recent months, major high street names such as Moss Bros, New Look and Ann Summers have been among those to have launched a CVA in a bid to cut property-related costs, such as rent, and close down stores.
BPF chief executive Melanie Leech said the abuse of CVAs made investment town centres riskier, distorted competition, undermined property rights, was weighted in favour of poorly-performing businesses and hurts pensioners, taxpayers and savers.
As a result, the BPF has urged the government to make five key overhauls to the CVA process:
- Ensure large CVAs are independently scrutinised
- Ensure CVAs can no longer be used to enforce permanent changes to contracts
- Extend the current 14-day notice period of the CVA creditors’ meeting to 28 days, with a provision that allows businesses to apply for a 14-day notice period if they can prove they cannot avoid insolvency for 28 days.
- Reform the voting procedure by giving votes greater weight to those directly affected by CVAs rather than less-affected creditors
- Provide clear direction on how rent is factored in voting purposes to prevent businesses and insolvency practitioners from manipulating the vote by discrediting property owners
“The Covid-19 crisis has brought into sharp focus this abuse of process, which the BPF has been highlighting for years,” the letter reads.
“While the crisis has brought genuine hardship to businesses up and down the country, it has also been cynically used as an excuse by wealthy individuals and private equity backers to shift onto property owners the cost of years of failings and underinvestment.
“CVAs are also being used to permanently rewrite contracts without any court oversight and to avoid contractual obligations freely entered into.
“As well as being fundamentally inequitable, such CVAs are damaging the high street, hurting pensioners and savers, and undermining the UK’s reputation among international investors.
“They also put well-run businesses who do not resort to CVAs at a competitive disadvantage, dampening innovation and creativity.”