The Original Factory Shop Looking at a CVA

The Original Factory Shop (TOFS), bought by Modella Capital just four weeks ago, is working with advisers at Interpath on a potential company voluntary arrangement, Sky News has reported.

​Modella is looking at a CVA in order to close underperforming businesses and impose rent reductions on others.

Potential reorganisation suggestions are also believed to include a significant distribution centre.

There will undoubtedly be some job losses among TOFS’s employees, which was estimated to be around 1,800 at the time of last month’s takeover, if any so-called “landlord-led” CVA caused store closures.

What is a landlord led CVA?

A CVA allows the company to terminate its liabilities under a lease provided that the majority of creditors by value (75%) agree. Landlords who do not have large arrears or rent owed to them are permitted in law to vote to the value of only 12 months rent.  In the majority of cases, landlords make up a small proportion of the total debts so they are routinely out voted by suppliers, HMRC etc.

This explains why many retailers use this as a way of reducing rental costs as they can make up a high proportion of the companies costs but not their liabilities. So in other words they can get rid of loss making stores and not be on the hook for the 5 year lease.  By applying pressure on landlords, by threatening a CVA, they can get rent reductions on premises that might otherwise have to close.

TOFS, which sells beauty brands such as L’Oreal, the sportswear label Adidas and DIY tools made by Black & Decker, has about 180 outlets.

​​We will keep this page updated once we know more.