Rent Reductions in a CVA
A rent reduction might be proposed with the landlord as part of a CVA agreement. If the majority of creditors agree, this can be imposed on the landlords. For it to be fair the landlords will have the option to take back the premises.
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How Does Retention of Title Work and What Happens in Insolvency?
A Retention of Title Clause allows ownership of any good within the contract of sale, to be with the supplier, rather than the customer, until full payment for the goods has been received. This reduces the risk to the supplier in the event of insolvency.
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Retailers increasingly turn to CVAs to restructure their businesses
UK High Street flagging as retailers increasingly turn to CVAs Figures from the British Retail Consortium (BRC) show that the UK high street and retail performance is facing difficulty. In 2016/2017 we saw a sharp decline in performance and it has been stressed that this has continued.This has been borne out in the high number of companies entering administration or seeking company voluntary arrangements (CVAs) within the last 12 months.Here, we'll take a closer look at UK high street performance and the factors causing it to suffer. Firstly, What has happened to high street performance in the UK? These are the key statistics from the latest BRC research:Overall year-on-year (YOY) retail sales fell 2.7% in May 2019 (the biggest decline on record!) Food sales dropped for the first time since June 2016, with further declines in clothing, outdoor goods and footwear 1,566 stores have had to reduce rent amounts Retail & Leisure Parks account for a third of all closures in the UK as a result of a CVA, administration or liquidation Nottingham city centre has experienced the most closures through either a CVA, administration or liquidation Birmingham holds the most closures of all UK Urban Areas. They've had 26 rent reductions and 23 closures since January 2018 Of all the Counties, Greater London saw the greatest damage, by far Footfall was down 1.4% on average over the 12 months to March 2018 As in 2016/2017 figures, the South East saw the most rapid fall in footfall There has been 140 closures and only 6 rescues of retail/leisure operators, since January 2018 To date, May 2019, 24 companies have failed, 743 stores have been affected and 31,250 employees have been impacted.How has this affected specific businesses? Several UK high street retailers have hit the headlines after being forced to take action due to falling footfall, including:Select: Closure of 14 stores, despite 50 being earmarked. Additionally, they have requested for a rent reduction L K Bennett: A notice of intention for Administration was filed, leaving 41 UK stores at risk as well as 480 UK staff affected Poundworld: Saw the closure of almost 200 stores, as they faced liquidation Mothercare: 60 store closures with 77 stores having their rent reduced by 17% Toys R Us: Entered administration after failing to find a buyer, having implemented a CVA New Look: Closed 60 stores and cut 980 jobs after agreeing to a CVA Homebase: A CVA vote, left 45 stores to cease trading with 1500 jobs at riskDespite this, six retailers have been saved. See the cases of House of Fraser, Arcadia, Office Outlet, Patisserie Valerie, HMV and Evans Cycles. What's caused this decline in high street performance? Economic and political uncertainty, falling consumer confidence, changing consumer habits and rising inflation have all contributed to the long-term decline of the UK high street.However, the most pressing factors impacting the retail sector in May 2019 were:1. Low Growth OnlineKPMG's UK retail partner, Paul Martin, stressed: “The extremely low growth online is real cause for concern, especially with almost a third of all non-food sales today being made online. This trend has continued to manifest itself over the last year and requires real focus from the retail community.”2. Business ratesIncreased business rates are potentially the biggest single contributing factor when it comes to UK high street performance.Gary Grant, founder of high street toy retailer, The Entertainer commented: "Landlords are being very realistic about their rent, but the one thing that is not negotiable are business rates."[The retail sector] is seeing many stores empty for long periods of time and the biggest issue is that [retailers] can’t open stores.''“Business rates are out of line now with retail turnover. Business rates are the real killer. Any increase in cost where you have flat and declining turnover is going to put pressure on the bottom line.''“The Government just haven’t got it. They need to take some responsibility for the high street’s decline.”Likewise, Helen Dickinson, OBE, BRC's Chief Executive, states how such rates prevent retailers from ''investing in their physical space. We have a broken tax system, which sees retailers paying vast sums of money regardless of whether they make a penny at the till, and yet the Government is failing to act.''With the UK high street continuing to suffer, it pays to know your options as a company boss. Taking difficult yet decisive decisions at the right times will put you in the best possible position to keep your company trading successfully.If you are worried about declining UK high street performance and the prospect of a CVA, contact the experts at Company Rescue today. Take a look at our site for many useful pages of advice.
ReadCoast Collapse into Administration
Coast becomes the latest fashion chain to collapse into administration.Last month, Aurora, Coasts parent company, was searching for a buyer, after the business was hit hard from House of Fraser’s recent difficulties.On Thursday evening, staff were told that all of Coast’s 24 standalone stores will close, with 300 jobs at risk.PwC have been appointed as administrators.Upmarket womenswear rival, Karen Millen have brought Coast’s brand, website and concessions, as well as taking on 600 staff. They’re said to be working with the existing management team to continue to grow and develop the new business. Though this sale gives a firmer financial footing for Coast, not everything was included in the transaction, leaving 24 retail stores behind.PwC director and joint administrator, Mike Denny, states ‘’The businesses had been facing financial difficulties due to structural changes in the retail space and specifically the concession partner market, as well as a softening of demand for occasion wear.’’Coast operate a number of concessions in House of Fraser stores and so faced a multi-million-pound bill following the department stores £90m pre-pack administration sale. They were not the only fashion brand to have taken a hit, with Ted Baker, Mulberry and Quiz also being affected.
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Betterware goes into administration soon after Kleeneze
Betterware, which sells household items via a catalogue sent to millions of homes, has gone into administration following its sister company Kleeneze. Betterware employed directly 90 people and thousands of door-to-door selling roles.Betterware said that difficult trading conditions and cashflow problems had been responsible for its demise.The firm started in 1928 when it was founded in east London as a door-to-door seller of brushes and polishes. The catalogue was launched in the 1970s and in 2015 the business was bought by JRJR, a Texas-based consumer sales group.The company relies on thousands of self-employed agents who distribute the catalogue around the country. Many of them have other forms of income to supplement their earnings.Begbies Traynor, the company’s administrator, said that Betterware had ceased trading, with all staff made redundant. “Our aim was, of course, to find a purchaser for the business as a going concern in order to safeguard the jobs, but unfortunately this did not prove possible,” it said.Any parties interested in acquiring assets of the company has been asked to contact the joint administrators Gareth Rusling and Claire Dowson of Begbies Traynor as soon as possible.No details have been given to those who may have ordered goods but have a look at our page on “will I get my goods!”This is what one of the regional managers sent to us to put her side of the story
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New Look to use CVA to close 60 stores
Updated:New Look is now considering a CVA in order to close up to 60 stores, which represents 10% of its portfolio, after a very tough year in which UK sales were down 8% on like for like comparisons. 980 jobs are at risk. The South African owned business will need the permission of its bondholders. The plan also includes a rent reduction and new lease terms for 393 of its stores.New Look, which is owned by South Africa's Brait, has asked its creditors to approve the proposal by March 21 and all stores will remain open until then. Deloitte is acting as a nominee to the CVA.It has also been reported that the firm had lost its credit insurance from some of its suppliers that will mean that it will have to pay upfront for its supplies. This has echoes of many other firms that have gone bust where the failure has been precipitated by the withdrawal of credit insurance.New Look is the latest in a series of High Street names to look at trying to reduce the size of their store portfolios amid rising pressures from online and discount rivals, increased living wage and a deteriorating outlook for consumer confidence.Expensive High Street stores can be cut back provided that the lease allows for early termination. If not the only way out is to surrender the lease that can be very expensive or use a company voluntary arrangement (CVA).A CVA allows the retailer to determine its lease obligations which can greatly help the company's cash flow.Daniel Butters, a partner at Deloitte, said that the CVA “will provide a stable platform upon which management’s turnaround plan can be delivered”.For more information on why a CVA is a perfect mechanism for helping retailers, read our retailer rescue page Why not read our case study where we rescued a multi-store retailer
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Byron Burgers to Seek CVA As Chain Struggles
The Byron Burger chain of upmarket burger restaurants has announced that it will be looking for the support of its creditors by way of a company voluntary arrangement (CVA). Byron Burgers employs 1800 staff in 70 outlets. The company is asking for a 55% rent reduction on 20 of its restaurants and to open a dialogue with the landlords regarding continuing trading.This is the latest in a line of businesses such as Toys R US that have been struggling recently and have looked at using the CVA mechanism. The CVA will allow the company to vacate some of its properties and close its branches which, according to the company, have not performed to expectations.In order for the rent reductions to be binding on the other landlords, they will need the support of 75% by value. These landlord CVAs are becoming more popular as retailers struggle with high premises costs.Rumours about the business' financial situation have been circulating since September last year when we reported that Byron confirmed it would be closing four of its outlets.Simon Cope, Byron chief executive, said: "Byron's core restaurant business and brand remain strong but the market that we operate in has changed profoundly."In order to continue serving our loyal customer base, we need to make some critical and difficult changes to the size and shape of our estate."CVAs are not popular with landlords as some see it as a way of businesses just dumping unprofitable stores. However, in order to do a CVA, the company has to be insolvent on one of the 3 tests. In this case, the business can argue that it is balance sheet insolvent as the ongoing costs and liabilities of the unprofitable stores will make the whole business insolvent.If you are a retailer or hospitality business then a CVA can be a very powerful mechanism to save your business. See our page on retailer rescue or give us a call on 01289 309431
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