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JJB secures creditors’ approval for CVA 22 March 2011

Insolvency practitioners at KPMG, who are supervising the CVA, claimed the approval marks one of the major steps towards turning the business around and avoiding administration.

The CVA terms will see the closure of some stores and all tenants within the JJB property portfolio will move to monthly rent payments for the next two years.

And while landlords will see rents reduce, they will get the chance to share in the success of the turnaround via a clawback mechanism, once JJB’s stores start to perform better.

The terms provide for an additional payment of between £2.5m and £7.5m, to be settled in cash or ordinary shares in the company, to compromised landlords.

This will be completed in a manner linked to the market performance of JJB. It will be payable on 24 April 2013, or earlier in the event of a takeover offer or other specified events.

Some 43 stores, two of which are not trading, will close on or before 24 April 2012.
The CVA will also allow JJB to review the performance of a further 46 stores and enable closure of them on or before 24 April 2013, if the performance cannot be improved.

The amount payable on the leases attached to those properties shall be 50 per cent of the contractual pro rata monthly rent, prior to closure, plus an amount equal to five per cent of the contractual pro rata monthly rent. This will be paid via a contribution related to dilapidations, plus the contractual amount payable in respect of turnover rent, insurance and service charge.

Richard Fleming, UK head of restructuring at KPMG and supervisor of the CVA, said: “While the CVA is but one element of JJB’s plan to turn its fortunes around, it is a vital cog in the mechanism that will put the business in a stronger operational position and, ultimately, avoid administration. 

“The proposal process has given both the company and its creditors the opportunity to agree a compromise that is mutually acceptable.”

KPMG estimates that the landlords who accept a reduced rent can expect to see a substantially larger return via the CVA than in the alternative of administration.

Fleming believes they will receive 24.6p to 29.2p in the £1 via a CVA, rather than 1.1p in an administration.

Brian Green, restructuring partner at KPMG and fellow supervisor of the CVA, said: “We have worked hard to improve the CVA model and - while a CVA must always offer a better return to creditors than administration - we have also been mindful of specific concerns voiced by the landlord community. 

“To this end, landlords have welcomed the opportunity to share in the upside of the turnaround via the clawback mechanism.”



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