KPMG will spend the next two weeks in talks with creditors of Byron Hamburgers as the embattled burger chain waits to see whether it receives sufficient approval for a company voluntary arrangement (CVA) proposed yesterday.
The company needs to secure at least 75% creditor approval for its CVA, which would see it restructure the business financially to raise new investment and lower the rents it pays landlords.
Byron creditors have now been given access to a detailed online proposal document, which they will pore over for the next three weeks before exercising their vote on 31 January.
Will Wright, restructuring partner at KPMG and proposed ‘supervisor’ of the CVA, said the timing of the announcement reflects the fact that some of its stores have underperformed and tougher conditions are on the way.
“Over the last 10 years, Byron has grown to become a stand-out name within the UK’s casual dining sector. However, in recent times, certain parts of its portfolio have not met expectations, and with gathering economic headwinds starting to impact the sector more profoundly, the directors embarked upon a strategic review of the business as a means of safeguarding its long-term future,” he said.
“As part of this strategic review, the directors have been successful in negotiating a financial restructuring with the company’s lenders and shareholders, which will enable new investment to come into the business. Completion of this financial restructuring is conditional on the approval of today’s CVA proposal, which is designed to tackle the cost of the company’s leasehold obligations across its UK restaurant portfolio.”
As with similar CVAs, the arrangement that Byron is proposing seeks to strike a balance which provides a fair compromise to landlords, while allowing the viable part of the business to move forward across a smaller, more profitable core estate.
Media reports suggest that up to 20 restaurants – almost a third of its estate – could close. But this wouldn’t happen immediately.
“It’s important to stress that no restaurants will close on day one, and employees, suppliers and business rates will continue to be paid on time and in full,” said Mr Wright.
Byron operates from 67 leasehold restaurants across the UK. It holds a further nine non-operational leasehold sites including its head office in London.
Mr Wright added: “The CVA essentially divides this portfolio into three categories. For a total of 51 Category 1 sites, the leases will be retained at current rents. A further five Category 2 leases, have been identified as being viable at a reduced rent, equivalent to two thirds.
“For the remaining 20 Category 3 sites, a reduced rent, equivalent to 55%, will be paid for six months, while the company engages with landlords to agree the basis of any continued trading from these premises.”
Company voluntary arrangements are not unusual in the restaurant sector. Where a company is experiencing difficulties in paying its debts, the directors can propose a CVA whereby the company enters into a legally binding agreement with its creditors, such as their suppliers or landlords.
In a similar vein to an individual voluntary arrangement (IVA), which gives an individual an alternative to bankruptcy, a CVA enables a company and its creditors to come to a compromise agreement and avoid an administration or liquidation.
A CVA can provide a company with some breathing space to allow it to reorganise or restructure its funding or its operations with as little disruption to the day-to-day trading as possible, with the control of the company usually staying within the existing management.