Pizza Express’s creditors have approved the chain’s restructure leading to a plan involving the closure of 73 restaurants and 11,000 jobs lost.
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Why has Pizza Express entered into a CVA?
Despite the company trading profitably before the coronavirus pandemic, Pizza Express’ earnings have been declining over the past three years.
Pizza Express have stated that the reduced revenues are a result of the lack of business over lockdown as well as the higher costs associated with reopening restaurants. Concerns over the UK’s economy have resulted in Group’s rental cost base becoming unsustainable.
What does that CVA proposal consist of?
Pizza express formally launched it’s CVA proposal on 19 August 2020 with the aim to reduce the company’s rental payments in order to improve its operational performance following the financial impacts of the pandemic.
The CVA proposes that 73 of its current 339 sites close resulting in the loss of 1,100 jobs. The CVA will also reset the Group’s leasehold obligations and allow for a smaller better invested restaurant estate by reducing rental agreements and implementing a temporary change from quarterly to monthly rental payments.
More than 89% of all responding creditors voted for the CVA during a virtual meeting on 4 September 2020, passing the 75% approval threshold. The CVA will not apply to sites situated in Jersey, Ireland or its international sites.
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.
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; and
- Privacy as a CVA is not advertised or announced (unlike a winding up petition or administration).
Why should directors instruct specialist CVA Insolvency Practitioners?
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.
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