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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Times are Tough for Commercial Landlords

Commercial landlords are coming under pressure from all sides in the current economic climate.
The plight of those landlords in the retail sector has perhaps been the most widely publicised as more and more empty shops appear on the High Streets where retailers have either ceased trading or moved out of expensive and badly performing outlets.
The problem for landlords is the double pressure of receiving no rent for their empty properties while still being liable for paying expensive business rates, calculated at approximately 40% of estimated annual rental value, a considerable burden.
Recently Dixons, owner of Currys and PC World, revealed that it had agreed with some of its landlords, to pay rent of just £1 a year in exchange for Dixons continuing to pay the business rates. Dixons is not the only retailer with business rate only deals with landlords.
Problems are not only in retail, however. Many commercial landlords are struggling as their tenants downsize, restructure or go out of business altogether, leaving empty industrial and office units for whom new tenants are hard to find. They still have to service their own loans as well as securing their empty premises and paying rates.
Added to this is the change in attitude among lenders towards property companies. Property loans are generally provided by banks who are now asking for much more equity and much better tenant covenants with evidence of a secure income when considering new or renewal of commercial mortgages. Banks themselves are already overloaded with vacant and distressed property assets.
The confluence of pressure is leaving many commercial landlords completely boxed in and adding to the problem is the amount of commercial property on the market.
A related issue is the number of businesses that cannot be sold because of an existing lease obligation. Buyers often want to downsize and therefore are seeking to renegotiate lease terms before purchasing the business.
There are formal and informal restructuring options that can be used to help commercial landlords who are dealing with vacant and loss-making properties but restructuring property portfolios is a complex process and every single situation is different.  This is a situation that requires the knowledge and skill of an experienced restructuring adviser.

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Banks, Lenders & Investors Cash Flow & Forecasting General HM Revenue & Customs, VAT & PAYE Insolvency Interim Management & Executive Support Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Many companies for sale turn out to be insolvent

Many companies are being listed for sale through brokers with high price tags based on very tenuous valuations, where the owners have been deceived into thinking they will be paid a huge amount for their equity.
However, on closer inspection it turns out that many of them have a Time to Pay arrangement with HM Revenue and Customs or are in arrears with the Revenue and are stretching their trade creditors. All too often they are insolvent but don’t realise it. 
This over indebtedness is becoming a serious concern among potential investors because often the company they want to buy is operationally a great business and for trade buyers a perfect fit with their existing businesses. The problem for investors is how to protect their own interests and avoid contamination.
Very often, even experienced executives lack the knowledge and methodologies for assessing a company they want to buy, let alone knowing how to sort out the indebtedness once due diligence has revealed its extent.
In my view, potential investors can work with incumbent directors to reach agreement with creditors that protects all parties by enhancing the prospect of a return to sellers and avoiding cross contamination.
One method I use is an investment, conditional on approval of a CVA by creditors thus leaving finance agreements and any liabilities in the target company. It also allows creditors’ issues to be addressed where they are not normally consulted in a pre-pack. For the investor, this can be structured to give them security and control if they so wish.
As a rescue specialist I would advise owners trying to sell a business in difficulty to employ their own turnaround advisers before putting the business on the market.