City AM reported yesterday that the group was considering shutting some of its 12 restaurants in order to avoid administration.
The chain, founded in 2007, says it has begun a ‘process of engagement’ with its stakeholders on a plan to ‘secure the future’ of the company.
The CVA, which is expected to be filed this morning, will see Chilango propose to exit ‘non-trading leases’ where it planned to open sites, reduce rents in select locations, and restructure company debt.
Chilango says the plan, alongside a reduction in central costs, will make the business both EBITDA and cash flow positive at a group-level.
A statement from the group's co-founders Eric Partaker and Dan Houghton says: “Chilango remains profitable at the restaurant-level, however in recent years the market in which we operate has changed significantly.
“This proposal allows us to make important changes so we can support our stakeholders and continue serving our loyal guests. We are proud of the strong brand and passionate following our teams have created and look forward to the future.”
Chilango reported a £1.4m loss for the year to March 2018, the most recent period for which accounts are available.
The CVA will require approval from creditors, including around 1,500 small investors who bought its mini ‘burrito bonds’.
Mini bonds are attractive to investors due to offering high returns, but earlier this year the Financial Conduct Authority warned they could be high-risk as they are illiquid and cannot be traded between third parties.
Bondholders are also not protected by the Financial Services Compensation Scheme if the company issuing the bonds fails.