Tuesday, 24 February 2009

Creditors dig their heels in on Stylo CVA plans

Fashionista, like most women on the planet, loves her shoes and has been admirably trying to make up for the drop in consumer spending by flexing her plastic. However, one women's efforts are insufficient to stop falling sales, particularly as regards the footwear sector, which has been hard hit over the past year or so.

Stylo, the footwear group which owns Barratts and Priceless, looks to be the most recent footwear victim as it failed to secure enough support for its Company Voluntary Arrangement ("CVA") recently and fell into administration, like so many of its footwear competitors. So what then Fashionista asks is a CVA and why might a creditor (for example, a landlord) not be in favour of such an arrangement?

For those who don't know, a CVA is a court administered agreement between a company, its creditors and its members entered into with a view to avoiding a complete corporate failure. CVAs can take a number of forms but they essentially look to compromise creditors' claims in return for a reduced payment pro rata to those creditors' claims and/or payment over time, the end result being the survival of the restructured company.

A CVA can be undertaken either by the company itself, acting by its directors, or by an administrator (or liquidator as the case may be) when the company is already in an insolvency process. The moratorium given by the administration allows time and protection from creditor interference for the administrator to draft a proposal for a CVA. Alternatively, the directors of the company may propose a CVA without first putting the company into administration or liquidation. The CVA needs to be approved by ordinary resolution at a members meeting and by a majority in excess of three-quarters in value of the creditors voting at a creditors meeting, which unfortunately Stylo wasn't able to secure.

In considering CVAs, landlords are often asked to take a significant haircut on their outstanding rental payments and indeed to reduce rental payments going forward or provide rent-free periods as part of the suggested proposals. This is often coupled with waivers of guarantor liabilities from other group companies, a precedent which (particualrly for landlords with large portfolios of properties) many are not prepared to accept. In addition, landlords and other creditors may find it an unattractive proposition to allow the existing management retain control of the business going forward - if they have failed once, the view often taken is that they are likely to fail again.
Recent reports in Drapers suggest that Stylo chairman and chief executive Michael Ziff and family have bought the Stylo, Barratts and Priceless names from administrators Deloitte as well as 160 stores, the internet business and Stylo’s 165 concessions within Dorothy Perkins which is good news for Stylo and good news for Fashionista and other shoe lovers.