Clintons – the card shop that didn’t fold
The next step was to attempt to place the company into a Company Voluntary Arrangement (CVA) that would have allowed it to reduce the rents on its most expensive sites and close its loss-making stores outright but this was rejected after it was apparent that it would fail to achieve the necessary voting majority after several landlords indicated that they’d object to the CVA.
The company has now been sold out of administration in its entirety to a new company called Esquire Retail Ltd, a wholly owned and controlled subsidy of the US-based Weiss family, who brought Clintons from American Greetings in 2012, the last time the company was in administration, which also saw the closure of 350 stores.
The stores under the new company will be operating under licence from the administrators which gives Clintons up to a year to either agree new, cheaper leases with landlords or close the stores.
Clintons Chief Executive Eddie Shepherd said they were pleased to have secured the firm’s immediate future ahead of the “crucial” Christmas trading period.
“LIke so many of our fellow High Street retailers, we have worked tirelessly to contend with the maelstrom of issues impacting the sector, from business rates pressures, to fragile consumer confidence and the lack of clarity around the taxation of online retail businesses.”
Clintons currently has 334 stores across the UK that employ just over 2,500 people who will be relieved to keep their jobs and help the company ahead of a hopefully busy festive shopping period.
Leader of the pre-pack
The system that allowed Clintons to re-emerge debt-free and back onto the High Street with assets intact is known as a pre-pack administration.
According to R3, the insolvency industry’s professional trade body, just under one in three administrations (and 3% of all corporate insolvencies) are now pre-packs.
Pre-packs can take place when a company is insolvent and the appointed administrator, a licensed insolvency practitioner, agrees that a pre-pack is the best way of achieving returns for creditors.
The rules governing pre-pack administrations can be found in Statement of Insolvency Practice (SIP) 16 which sets out how creditors are protected and how companies should be pre-pack should be valued and marketed.
As Clintons were purchased by a corporate entity connected with the insolvent company, this is known as a connected party pre-pack.
If creditors have concerns about a connected sale they can ask for independent oversight from the Pre-pack Pool, a group of experienced business people who can provide assurance on the soundness of the proposals.
Our guide to pre-pack administration goes into more detail but essentially the process is when the sale of a whole business and/or its assets is arranged before the appointment of an administrator and completed shortly after the appointment is made. The proceeds from the sale are used to repay the company’s creditors. There may also be a stipulation from the purchaser to pay a proportion of future profits back to creditors of the old company if the new one is more successful than anticipated.
Creditors are notified once the sale is complete and provided with a detailed report on the pre-pack process explaining why it took place, why it was a better option than insolvency and how the business or assets were marketed before the sale.
Crucially, a pre-pack administration helps protect the value of a business for its creditors.
The whole purpose of a pre-pack is to maximise what can be repaid by obtaining the most value. Once it’s public knowledge that a company is in financial difficulties, its value falls, key staff may look for other jobs, customers may cancel orders and the brand’s reputation could be damaged. It can kick start a terminal spiral of decline.
A pre-pack achieves best results when it’s quick and discreet, helping to protect the value before any damages can take root.
If your company is facing insolvency but feel its just had some bad luck and could be profitable in different circumstances then get in touch with us today.
We’ll set up a convenient free initial consultation with one of our team of expert advisors to talk through your circumstances. Once we know all the facts and figures, we can help you decide what would be the best path for your business and help point you towards it.