Restructuring real estate: CVA vs Restructuring Plans

Choosing the right path forward for real estate restructuring

Phil Reynolds and Allan Kelly highlight key considerations when it comes to using RPs and CVAs to restructure real estate

On March 26^th, we will be holding our 2025 Real Estate Conference at the Barbican Arts and Conference Centre – an afternoon of thought-provoking interactive workshops and networking that will explore practical tools and strategies to help businesses navigate the challenging economic landscape and lay strong foundations for the year ahead.

Here, FRP Restructuring Advisory Partners Allan Kelly and Phil Reynolds share insight into one of the key issues they’ll discussing on the day: the advantages and challenges of Company Voluntary Arrangements (CVAs) versus Restructuring Plans when it comes to real estate.

Real estate is regularly prominent feature in restructuring cases, particularly in sectors with large, often rented, physical footprints such as hospitality and retail.

While it’s rarely the sole reason for distress, it’s frequently something that companies must address on their return to health – whether that means rationalising leases or compromising what may be sizeable amounts of outstanding rent.

When this is the case, the first port of call that we always advise is simple communication. Landlords can be open to concessions, provided the right approach is taken. This could include rescheduling arrears across a longer period, some forgiveness against current arrears, a ‘turnover-based’ rent where the rent is paid as a proportion of the turnover generated by a business, a direct discount, regearing the lease (extending for a discount so the landlord has more security of tenure), or a hybrid approach. This might involve the tenant paying part fixed rent or part variable, with the ability to revert to normal terms should future performance warrant it.

But what if negotiations fail?

Company Voluntary Arrangements (CVAs) and the newer Restructuring Plans (RPs) can provide paths forward to recovery.

Different strokes

These each operate slightly differently. At their simplest, CVAs are an arrangement made by a company with its creditors – in this context, their landlords – to repay them a percentage of a debt over a fixed period with the purpose of rescuing the company and returning more to those creditors at a higher level than the alternative scenario, which could very well be liquidation. They work particularly well where there’s been a ‘shock to the system’, but where the underlying business of the distressed company remains solid but may need either a temporary or permanent reduction in its liabilities or lease terms. It’s this foundation that provides the basis for an arrangement to be made.

For a CVA to be agreed, the majority of the business’ creditors – which is counted as 75% by debt value – must agree to the plan at a vote, and a clear majority (50%) of unconnected creditors must also vote in favour.

What if negotiations fail? Company Voluntary Arrangements and the newer Restructuring Plans can provide paths forward to recovery.

Allan Kelly Partner Restructuring Advisory

RPs, on the other hand, are a court-approved arrangement between a company and its creditors. Their central principle is that no party is worse off than in the ‘relevant alternative’ – often, but not always, an insolvency process.

Like a CVA, in order to pass, creditors need to vote on their approval. Creditors are split into classes, based on their rights against a company. Each class is deemed to approve if 75% of their value votes in favour.  However, it does not need to be approved by a numerical majority to pass. And its real power is that it can become binding with only one class of creditors’ approval – provided that no creditor in any class would be worse off than the relative alternative. This feature, known as the ‘cross-class cramdown’, has been used to successfully reduce rent and associated liabilities including exiting leases

Choosing the right path

The big question is – which to choose? Each has relative advantages; each has factors to bear in mind.

Choosing a CVA can minimise publicity around distress, be quickly implemented, protect jobs, create a stronger more viable tenant within retained properties, generate a higher return to creditors, and often allow the board and shareholders to remain in control of the company, steering its future direction.

But the process of voting analysis, can be difficult and drawn-out. In some instances, there simply might not be enough runway for a company to follow this through. And a key challenge in any CVA is reaching a deal that’s truly sustainable – businesses always need to be very careful not to agree to a plan with creditors that will simply land them back in the same or weaker position  further down the line.

RPs have the advantage, for the companies submitting them, of the cross-class cramdown. This generally allows for a far more radical reshaping of a leasehold portfolio than would otherwise be possible in a CVA as the creditors views may not ultimately influence the final approval of the RP. But the reality is that they will take longer, and cost a lot more, to achieve. 

It’s these issues, and many more, that we’ll be discussing at the upcoming Real Estate Conference, and something we’re going to explore in more detail in the workshop we’re presenting – CVA vs. Restructuring plans – What’s the best solution?– alongside Gareth Williams Chairperson of the  British Property Federation’s Insolvency Committee and head of credit control at Land Securities Group plc, and moderator Aaron Harlow from Greenberg Taurig LLP. 

To learn more about the event, see the full agenda  here.