Covid-19: Travelodge prepares to enter into a CVA

It has recently been reported that Travelodge (a hotel chain) are preparing to launch insolvency proceedings in a form of a Company Voluntary Agreement (CVA) in an attempt to reduce its rents with landlords by 40% over the next 18 months to save 10,000 jobs across the UK.

Our Insolvency Solicitors & Barristers are able to give you specialist legal information and advice on your businesses best insolvency options. Just click here to complete our online contact form or for a free initial telephone consultation with a qualified winding up lawyer call 02071830529.

What has happened to Travelodge during Covid-19?

The company has been facing difficult times with its landlords since the end of March. Travelodge could not make rental payments for the second quarter of the year given the current pandemic which has caused 564 hotels to close during the lockdown.

Travelodge is owned by investments firms including Goldman Sachs, Avenue Capital and GoldenTree which has £100 million in cash reserves. The shareholders have pledged to inject about £40 million in new equity into the business and raise £100 million in new debt as part of a turnaround plan.

Why has Travelodge decided to enter into a CVA?

Unlike a traditional CVA that is often used by struggling retailers to close unprofitable stores, Travelodge are not proposing to close any hotels or cut jobs but instead are seeking a limited period of time for rent reduction. Travelodge is asking landlords to cancel £144m of rent due until the end of 2021, and is giving those landlords that accept such a rent reduction the opportunity to break the lease after six months.

However, commercial landlords have accused the hotel chain of using the pandemic as an excuse to reduces rent costs.

What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is an agreement between a company and its’ creditors to allow a proportion of the debt owed to be repaid over a fixed period of time. The proposal must be agreed to by 75% of the creditors by value for it to pass.

A CVA creates a moratorium on debt enforcement action) by creditors against an insolvent company A CVA allows the business to carry on trading and keeps the directors in control of the company.

What are the advantages of a CVA for your business?

  • All monies that are owed to creditors can be subsumed into one monthly payment;
  • A CVA stops the threat and presentation of a winding-up petition;
  • Improves cash flow as soon as the CVA is agreed to by 75% of the creditors by value;
  • Terminate onerous supplier contracts;
  • Directors and shareholders retain control of the company;
  • Lower costs than a scheme of arrangement;
  • Privacy as a CVA is not advertised or announced (unlike a winding up petition or administration).

Why should directors instruct specialist CVA Insolvency Practitioners?

In a study of all the Company Voluntary Arrangments (CVAs) filed in 2008, the average number that an adviser that responded proposes yearly is just two; an incredibly small number. There are several hundred CVAs proposed annually (765 in 2010 and 767 in 2011); the average success rate with HMRC’s Voluntary Arrangements Service on CVA proposals is around 73%. It is clear that Directors should be looking to turnaround and company rescue specialists that have experience in succeeding with their proposals and are doing CVAs on a daily basis. Specialist CVA IPs may have a success rate of over 90%. Directors are therefore wise to ask for the track record of the IP they are consulting.

Instruct Specialist Insolvency Lawyers

We provide a no cost initial case review to establish whether or not we can help you. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.

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