Chain of Restaurants Hit By Pandemic

The Challenge

A specialty food company with six outlets and a central kitchen in London faced a devastating crisis when its business was forced to close in March 2020 due to the COVID-19 pandemic. The complete lockdown caused substantial and unexpected losses. When the company carefully reopened some sites in July 2020, its turnover was only 15-20% of pre-COVID levels, as customers continued to work from home. This situation was unsustainable, with the company’s landlord owed a staggering £349,000 in rent arrears by December 2020. This was in addition to a debt of £650,000 in director’s loans. The company, which had sales of £3.5m before the pandemic, needed a radical solution to deal with its mounting debt and adapt to a fundamentally changed market.

The Solution

The company engaged RMT KSA, who advised that a Company Voluntary Arrangement (CVA) would be the best course of action. The CVA was designed to allow the company to negotiate deals on its outstanding rent and HMRC arrears. We approached each of the landlords and negotiated a new payment structure based on a turnover model for a period of six months. This provided a crucial financial lifeline during a period of reduced footfall. The CVA also bound the rent arrears, which would be managed under the arrangement. The directors’ loans were treated as unsecured creditors, and they agreed to waive their claims, a common practice to ensure the CVA’s success. The CVA also included a provision for additional payments to creditors if the company’s turnover and profitability increased in the future.

The Results

The CVA was successfully approved, with the company’s landlords receiving 32p in the £1 on their rent arrears. The initial six-month turnover-based rent plan provided the company with the breathing room it desperately needed. As working from home continued to impact business in 2022, KSA successfully negotiated a six-month extension of the turnover-based rents and is currently seeking a further extension in light of the cost-of-living crisis. So far, a number of the landlords have agreed. This case is a powerful example of how a CVA can be a flexible and effective tool to help a company navigate a crisis caused by a fundamental shift in its market. The CVA not only restructured the company’s debt but also provided a dynamic and adaptable framework that continues to save the business by allowing it to adjust to new market realities.