The Fall in Italian Restaurants and the rise of CVAs
It would be easy to blame the closure of Jamie Oliver’s chain of restaurants on the economic uncertainty caused by Brexit, but unfair.
The closures are part of a Company Voluntary Arrangement (CVA) agreed by the chain’s creditors. It accumulated £71.5m of debt, including a £2.2m wage bill, £30m borrowing and £41m rent arrears as well as tax and other debts. Over half (£47m) comprises borrowing from HSBC and Jamie’s other companies.
We then heard in breaking news last week that Prezzo is looking to close up to a third of its 300 sites, as it becomes the latest victim of tough trading conditions. It was bought by TPG Capital in 2014, which fuelled a massive expansion, and is now looking at closing a number of those as part of its own CVA.
So, what is a CVA?
It’s a statutory agreement between a company and its creditors, which allows a proportion of its debts to be paid over a fixed time period. CVAs usually last for up to 5 years and are supervised by a licensed insolvency practitioner. The objective is to allow the company to continue trade (saving jobs and the business).
There is no obligation to replace the management, who retain control. In Jamie’s case, the CVA will allow it to close 12 of its 37 unprofitable restaurants, negotiate reduced rents and pay creditors a fixed sum over a period of time. 95% of its creditors, including landlords, voted in favour of the deal on Friday.
You may wonder why the landlords would accept a proposal for a reduced rent? If Jamie’s is anything to go by, the restaurant industry is suffering from reduced footfall and higher overheads (such as rising costs of ingredients, utilities and staff). From a landlord’s perspective, it is prudent to accept a proportion of the rent due than risk a potential empty property.
Although 95% of creditors voted in favour of the CVA, all of the company’s unsecured creditors will be bound by it (because more than 75% voted for it). A CVA does not affect the rights of secured creditors (unless they specifically agree).
Our insolvency and restructuring team are experienced in providing management teams, lenders, investors and suppliers with astute commercial advice. If you need help please contact Kam O’Neill, or you can give us a call on 0345 070 6000.