One of the first things we’re going to do when lockdowns and restrictions are firmly a memory and in the rear view mirror is to go out to the theatre.
It will be great to experience an occasion safely with other people again as, despite Zoom productions and recordings, there’s nothing quite like being in a great live venue.
Which brings us nicely to the latest UK Insolvency statistics for February that have just been released by The Insolvency Service.
We’re still in the first quarter of 2021 and the trend begun last month of total company insolvencies falling away after a rise in December continues.
The total number of company insolvencies in February 2021 for England and Wales fell again by 9% to 686.
This was down from January’s total of 754 and is 49% lower than February 2020’s figure of 1,348. It’s also the lowest number of company insolvencies recorded since January 2019.
Given that thousands of businesses are unable to open or trade at the moment, haven’t for months and that millions of workers are furloughed - defying gravity is an apt summary of the numbers we’re seeing.
The total number of 686 registered company insolvencies for England and Wales is made up of:-
There were no receivership appointments recorded last month.
In the previous year of lockdowns, the total number of insolvencies has been lower than the previous month 10 out of 11 times.
Additionally there were 26 company insolvencies in Scotland (7 compulsory liquidations, 16 CVLs, 2 administrations and 1 CVA), down 70% year on year with 5 in Northern Ireland (all CVLs), down a huge 81% annually, making an overall UK total of 717.
The Insolvency Service sticks to their perfectly logical explanation that the results are depressed against normal expectations due to a mixture of the pandemic and response itself and the various ongoing and extended government support schemes.
The more well-known being the Coronavirus Job Retention Scheme, Self-Employed Income Support Scheme and Bounce Back Loans.
Equally impactful is the ongoing suspension of creditor actions such as statutory demands and winding-up petitions which are currently due to begin again after March 31st 2021 but, like other support measures, could be extended again.
The Insolvency Service also notes that more companies are taking advantage of other new procedures created last year including having restructuring plans sanctioned by courts and insolvency moratoriums.
“Insolvencies stemmed rather than stopped”
Colin Haig, President of R3, the insolvency and restructuring trade body said: “The fall in corporate insolvency numbers has been driven by a reduction in all corporate insolvency processes.
“Despite the fall in insolvencies, February continued to be tough for businesses and the economy. The national lockdown meant people weren’t able to celebrate Christmas and New Year as they have traditionally, which will have hit a crucial trading period for many businesses, and had an impact on their success - and in some cases through the first quarter of the year.
“Government support has been and continues to be a lifeline for many - and has stemmed rather than stopped the flow of insolvencies we would expect to see in this kind of economic climate.
“In addition, the usual ‘trigger points’ for action, such as winding-up petitions or repossession notices, are out of the picture at the moment, with many company directors putting off examining their options as a result.”
While it’s complicated trying to find an accurate attribution for the quote “complacency is the enemy of progress” - there’s no denying its wisdom.
The current benign conditions for struggling companies to avoid creditors cannot and will not last forever. Statutory demands and winding up petitions could be being issued once again by the end of the month so time is short to start making plans if your business is facing financial challenges.
We’ll get a full picture of your unique circumstances and be able to quickly advise you on what options you’ve got to protect and strengthen your business right now and when restrictions begin to ease.
Get in touch today and take the first steps into making a more stable future for your business.
It would be wicked not to.
With the announcement of the roadmap out of lockdown and the Chancellor’s Spring Budget imminent something definitely feels different about the time of year.
Along with lighter nights and mornings, it feels like 2021 is finally about to get going.
Especially now businesses in every sector at least have a rough guide to when they can reopen their doors and begin trading again if they’ve stopped during lockdown.
This increase in certainty will both focus minds and give business owners and directors a focus for these next few weeks before they can get on with the real business of serving customers again and returning to profitability.
All of this takes precedence over all the insolvency and administration news that’s happened this month but as usual, while you’re doing your job, we’re doing ours and gathering the most important and intriguing news that’s happened in one convenient place!
The famed footwear manufacturer and seller formally launched a Company Voluntary Arrangement (CVA) as it has been “affected significantly by the impact of lockdown measures on customer footfall across its sites”.
Dune has 43 standalone stores and an additional 175 concessions employing over 1200 staff but no stores or jobs are believed to be at immediate risk.
The arrangement is aimed at moving several stores to a turnover based rent model which would give the company flexibility in the short term.
Restaurant chain Prezzo was bought in a pre-pack deal in December by new ownership Cain International who have had to make some unwanted but necessary changes.
They confirmed that 22 of their restaurants would remain closed for good with the loss of 216 positions.
Jonathan Goldstein, chief executive of Cain said: “We firmly believe that strong hospitality businesses such as Prezzo have a bright future and will play an essential role in reviving the UK economy.
“However, to do so, we must get through this current crisis of mounting liabilities and no revenues. We’re deeply sorry for all those affected by the permanent closure of the 22 non-viable restaurants.
“It was a difficult but essential decision to take but doing so will allow us to save thousands of jobs and create more in the future.”
As we go to press it’s being reported that GAP, the American casual clothes store, is drawing up plans to close its 95 UK stores and move to an entirely online operation - following in the footsteps of Arcadia and Debenhams.
In the last available figures up to February 2020, they saw a 9.5% reduction of sales - before the lockdown was instituted so it would be a fair assumption that the following 12 months figures would be even worse.
The patisserie chain with 20 sites all across London launched a CVA which would help reduce its growing rent debts.
Director Stephano Borjak said they had no option as landlords had lodged a legal action over unpaid rent after one of their landlords filed County Court claims against them.
While there are currently restrictions based on creditor actions such as winding-up petitions and statutory demands, these will likely cease sometime this year, allowing action to continue.
A CVA automatically provides protection against creditor actions regardless of wider suspension so is always a good option for any business looking to get its financial house in order without the threat of legal actions.
Casino owners, Genting have officially announced the final closure of their Southport Casino this month with the loss of 38 permanent positions.
It joins previous locations in Margate, Torquay and Bristol citing the negative effects of the Covid-19 pandemic on physical gambling.
St George’s Shopping Centre
It’s not just the tenants that are suffering during the downturn - landlords are facing real consequences too.
The 280,000 sq ft St George’s Shopping Centre in Preston has been placed into administration by its owners after defaulting on a loan secured against it.
This is the ninth shopping mall in the UK to go into administration in the previous four months, not including the largest UK mall owner, Intu Properties, that went into administration itself in June 2020.
As we’ve previously mentioned, landlords are also currently halted from pursuing creditor action against tenants that have not been paying rent yet still have to service their own debts.
This is one group that will be looking forward to a better 2021.
It might be difficult to read lots of positive articles looking ahead to the lockdown being lifted if you feel that your business’ material circumstances and future situation won’t really change.
There is still a lot that has to happen this year to help companies trade again and be successful and there’s no guarantee that they will happen or that there will be no future infection spikes or even, in the worst case scenario, more lockdowns.
One positive action that all businesses can take - right now - is to get in touch with us for some free impartial advice regarding strengthening your business and your balance sheet.
The time is perfect to look at what your business needs and start implementing it with our guidance during these next critical few weeks before there’s any significant change in restrictions.
So when the shackles are eventually released, you’ll have a stronger, leaner, lighter version of your company to grasp the opportunities that will come.
Insolvency statistics are a curious thing.
The Insolvency Service does a fantastic job in providing regular, reliable and comprehensive statistics.
They give us the clearest indication of precisely what is happening in every UK country regarding company insolvencies. The downside is that they are necessarily time-lagged so by the time the official figures for a certain month are released, we’re three weeks into the new month and already looking ahead.
So it is with the first official statistics for January. These are important because they give us the first official snapshot of 2021 and what this could tell us about the underlying strength of the UK economy and the health of the thousands of businesses that make it up.
The last monthly statistics release we covered for December showed a rise in the total number of company insolvencies which indicated that after a year of historic lows, perhaps cases were getting back to the numbers one would expect given the series of challenges businesses are having to overcome to stay afloat.
Well, the opposite has happened - they fell by over half.
The overall number of company insolvencies in January 2021 for England and Wales was 752, down from 1,228 in December 2020 and down by just over 50% for January 2020 which saw 1,515 cases registered.
We now know that December 2020 was the only month since the start of the first UK lockdown in March where company insolvencies were higher than in the same month of the previous year.
But compared to January 2020, the figures from last month are striking:-
Additionally there were 23 company insolvencies in Scotland (12 compulsory liquidations, 11 CVLs) and 3 in Northern Ireland (2 compulsory liquidations, 1 CVL) making a total of 778.
The Insolvency Service reiterates that as a result of pandemic itself and various Government support schemes including the Corporate Insolvency and Governance Act 2020 including the ongoing suspension of statutory demands and winding-up petitions, would have a strong influence on the numbers.
However none of these entirely solve the mystery of why corporate insolvencies rose in December yet fell away again dramatically in January.
Colin Haig, President of R3, the insolvency and restructuring trade body might have an explanation.
He said: “Many firms are still struggling - and those who usually rely on a strong pre-Christmas trading period will have suffered as the third lockdown meant people couldn’t shop as they have traditionally. i
“It’s possible that a number of businesses entered an insolvency procedure ahead of the December rent quarter day, which would help explain why corporate insolvencies - and more specifically administrations and CVLs - increased then and fell again in January.
“January’s fall in corporate insolvency numbers is primarily driven by falls in CVLs, CVAs and administrations.
“These figures don’t reflect the fact that the economic fallout from the pandemic is continuing to hit businesses, individuals and the wider economy. It’s clear the Government’s support packages - which were extended again in December - are helping prevent the rise in insolvency numbers we would have expected to see in an economic climate like this one.
“However, the support packages and bans on creditor enforcement actions can’t last forever.
“We hope that the Chancellor will use his budget on March 3rd to outline how they will be wound down in an orderly manner in the medium term, and how businesses, staff and the self-employed will be supported during this period.
“Our members are telling us that companies are hesitant to make plans with conditions liable to change at any moment, so clarity around the future of the support schemes will help directors with their planning for the rest of the year.
“The debt burden which UK companies, especially SMEs, have built up is also a concern, as it will drag down the investment which will be a vital component of the economic recovery from the recession.”
Colin Haig’s description makes sense when you consider that entering an insolvency moratorium itself or other insolvency procedure that grants a similar protection such as a CVA.
It gives a company at least ten working days’ protection from creditors’ demands and actions while they work with a professional insolvency practitioner to see how they can make the business stronger and more resilient.
If you feel that your business could benefit from some professional, impartial advice then get in touch with us to arrange a free, virtual consultation.
We can help you make sure that your company is in the best position to take advantage because these legal and commercial conditions won’t last forever.
That’s one thing we can all be certain off.
The Insolvency Service have published their final corporate insolvency statistics for the year so we can see real data on how the Covid-19 pandemic and subsequent support measures have affected businesses in the UK.
There were 12,557 underlying company insolvencies recorded in 2020 which was a 27% year-on-year reduction but was also the lowest recorded level since 1989.
This was driven by the lowest number of Company Voluntary Liquidations (CVLs) - 9,418 - which was their lowest annual level since 2007.
Company Voluntary Arrangements (CVAs) - 259 - were down to their lowest levels since 1993 and with only 1,351 Compulsory liquidations recorded, this is the lowest number since 1973 - 48 years ago!
The overall number of company insolvencies in 2020 of 12,557 was primarily (over 75%) made up of creditors voluntary liquidations (CVLs) although these were 22% down on their total from 2019.
Compulsory liquidations were down by 55% year-on-year; Company voluntary arrangements (CVAs) were down 26% and administrations were down 16%.
The Insolvency Service have listed five potential causes for the reductions in company insolvencies - all related to the Covid-19 response efforts. These are:-
The Insolvency Service also notes that it specifically doesn’t record whether an insolvency is directly related to the pandemic so cannot positively state its direct effect on insolvency volumes but the effect on the figures is clearly not coincidental.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates compared to 12 months ago.
The areas that saw the most insolvencies in the 12-month period were construction (2,042); accommodation and food services (1,701) and wholesale & retail trade including repair of vehicles (1,673).
The construction industry traditionally tends to have the highest quarterly insolvency levels but the well publicised woes of the hospitality, hotel and food service industries have propelled them into second place as what would traditionally have been their busiest period was effectively halted.
Colin Haig, President of R3, the trade body for the insolvency and restructuring industry said: “The annual reduction in corporate insolvency levels - to the lowest total figure for more than a decade - has been driven by a decrease in all types of company insolvency.
“The most significant factors behind it are the support measures the Government has introduced for businesses since the onset of the pandemic and the suspension of creditors’ ability to take action against many corporate debtors.
“The government’s Covid-19 support measures and legislation are key drivers on these low insolvency numbers, but they have deferred rather than deterred the full effects of the pandemic being reflected in corporate insolvency levels.
“It’s a question of when, not if, levels of corporate insolvency increase this year, but the timing will depend on when - and how - the government support ends.
“The retail, hospitality and tourism sectors have been particularly badly hit, and we have seen a number of household names enter an insolvency process or announce restructurings in an attempt to mitigate the effects of the pandemic.
“At the moment, with government support still in place and creditors generally sympathetic to the challenges of the business climate, many companies may find they have a precious - albeit temporary - breathing space.
“Now is the time for their directors to think about how they move forward and take advice from a qualified source as soon as they see signs their firm is starting to struggle, or if they’re worried about this year.
“As the saying goes, it’s always worth hoping for the best but planning for the worst, and doing so now will mean you have more options later on.”
We couldn’t agree more.
We can arrange a virtual consultation - totally for free - whenever it’s convenient for you.
While the promise of a return to economic business as usual beckons, it will be many months and weeks before this arrives - if it does - so there’s no better time to act than now.
We’ll help you identify which areas of your business need immediate attention, which can be improved in time and come up with an effective and efficient plan to do both.
Then maybe 2021 will be a real improvement on 2020 for even more reasons.
Although if we’re honest, although it’s early days, things do seem a lot like 2020 don't they?
It’s dark, cold, miserable, we’re still mainly locked down and many businesses still aren’t allowed to open.
Throughout it all though, our friends at The Insolvency Service have continued to track all the company insolvency activity and have published their figures for December 2020.
In December there were a total of 1,228 company insolvencies in England and Wales with an additional 57 in Scotland and 9 from Northern Ireland which makes the UK total 1,294 - a rise from November’s 942 which is up an eye-catching 37.8% on the previous month
This is the first time that the numbers of company insolvencies were higher than the comparable month in 2019 since the start of the first UK lockdown in March. The percentage rise is 9.2%.
The Insolvency Service note that statistics for individual months have more potential for volatility and explicitly note that it’s too soon to tell whether this represents an emerging trend, especially as the insolvency numbers for December 2019 were themselves low compared to the rest of the year.
They will complete further analysis of long-term trends in the quarterly statistics bulletin for Q4 2020 which will be published later this month.
In a straight comparison to 12 months previously compulsory liquidations were 80% lower, CVLs were 26% higher, administrations were up 7% and there are twice as many CVAs although the number was admittedly small by pre-lockdown numbers.
There were more cases in every single category than the previous month and it will be interesting to understand The Insolvency Service’s analysis for this.
Company Voluntary Liquidations (CVLs) remains the most frequent insolvency process accounting for over 75% of all recorded procedures.
This is due in the main to the financial support extended to certain companies during the pandemic and lockdowns that are due to continue at time of writing until the end of March and April this year.
The financial support combined with ongoing suspension of creditor remedies including statutory demands and winding-up petitions have created a period of pause for some businesses - allowing them to continue to function when they would otherwise be considering insolvency solutions.
The court system which has also seen a vast reduction in its opening hours and staffing levels will gradually return to normal which will allow it to process the huge backlog of cases once lockdown hopefully begins to be eased in the Spring.
This was also the first year that companies were able to obtain an insolvency moratorium as four did or have a restructuring plan sanctioned by the court which occurred twice since their introduction in the Corporate Insolvency and Governance Act 2020.
Both of these are expected to increase substantially in the forthcoming 12 months.
The dam finally breaks?
Colin Haig, President of R3 - the insolvency and restructuring trade association, said: “These figures show that the economic impact of the pandemic may now finally be pushing increasing numbers of struggling businesses and individuals over the line into formal insolvency.
“It’s a question of when, not if, insolvency numbers further increase this year - especially as the Government’s support packages, which have provided a critical safety net for businesses and individuals, are due to start running out at the end of the first quarter.
“Even if the Chancellor decides to extend them again at some point they will have to come to an end.
“Covid-19 has had a devastating impact on the UK’s economy, which fell by 8.9% in the 12 months to November 2020, and on unemployment levels, which have increased at the sharpest rate for a decade. We’ve also seen a number of big brands - including household names - enter insolvency processes or announce restructuring programmes as their operations were hampered.”
It might have been too much to expect that just beginning a New Year would wipe away the restrictions and problems every business has had to contend with in the previous 12 months.
Indeed, without any official extension of the Coronavirus business support measures being announced, the weeks and months before they are officially wound down and withdrawn might be too much of a hurdle to overcome for some companies that have managed to make it so far.
But there’s always opportunity in turbulent times - the opportunity to act and put your own business first.
Once we get a clearer view of your situation, we can prepare various likely scenarios based on decisions and choices you can make that will give your business the best chance of making it into the post-Covid economy or being able to efficiently close a business in order to rebound and restart afresh when possible.
Whatever path you decide, you can take the first steps right now while the rest of the world is just waiting.
In November there were a total of 889 company insolvencies in England and Wales with an additional 46 in Scotland and 7 in Northern Ireland which is a UK total of 942 - a small rise on the 856 total for October.
The small uptick is likely due to insolvencies already arranged for the end of furlough, before it was extended at the 11th hour.
The 889 case total is made up of 767 Creditors Voluntary Liquidations (CVLs); 34 compulsory liquidations; 73 administrations and 15 Company Voluntary Arrangements (CVAs).
It is still 41% down on the same month in 2019 but with good and demonstrable reasons for it. CVLs have fallen by 28% year on year and compulsory liquidations are down a massive 88%.
CVAs are down 29% and administrations have fallen by more than half to 51%.
We’ve written about this before, detailing how all types of company insolvencies have fallen in consecutive quarters this year and this trend continues into Q4 although the figures did uptick slightly on last month.
Company Voluntary Liquidations (CVLs) are far and away the most common insolvency process accounting for nearly three quarters of all procedures.
The continuing relatively small number of both CVAs and administrations considering we are in a historic economic situation might still surprise at first glance but a straightforward explanation exists.
Firstly, financial support available to companies during the pandemic has been extended into March and April 2021 which is a welcome development, it also means that some businesses still function that would otherwise either be in insolvency or closed.
Additionally, the continuing suspension of statutory demands and winding-up petitions until makes it virtually impossible for creditors to take any enforcement action, along with the fact that the courts are running on a skeleton system.
They won’t be able to offer a full and functioning service until Spring at the earliest as they’re having to deal with both an increasing backlog and what will be a flood of new demands once the temporary suspension on enforcement measures is lifted.
“Many companies will face a cold start to 2021”
Colin Haig, President of R3 - the insolvency and restructuring trade association, said: “The increase in corporate insolvency numbers in November has been driven primarily by a rise in CVLs although CVAs, administrations and compulsory liquidations all fell compared to the previous month.
“Despite the small monthly increase in overall corporate insolvencies, the statistics are not an accurate reflection of the state of the economy or the state of the UK business community.
“WIthout the extensive support the Government has provided we’d be in a very different situation - and a very grave one at that. The economy is still nearly 8% smaller than it was in February, unemployment has increased and a number of big brands have entered insolvency processes or announced restructuring programmes in recent weeks.
“A good festive trading period has never been more important, but the impact of repeated stop-start closures in many sectors, and the disruption to usual pre-Christmas activities and events mean that many companies will face a cold start to 2021.”
Anybody who has tried to start a car after it's been left standing for an extended period understands the risks.
If you’re lucky it can restart with a minimum of cajoling and assistance but others will need specialist help to get them turning over and working well again.
In the worst case scenarios, you might have left it too late to get help and the only thing you can do is look at expensive new parts.
It’s the same with a business that is struggling going into this crucial winter trading period. If you’re lucky enough to be in a sector that lets you trade that is.
With so much economic uncertainty still ahead of us, businesses that act now to make sure they are doing everything they can to support and protect their livelihoods will have a significant advantage over those who don’t or leave it until things really are too late for them.
You can get in touch with us right now to arrange your free initial consultation.
It can be done virtually at a convenient time and date for you and we can talk through what’s worrying you and how you can start to prepare for a better future for your business in 2021.
The sweeping rules that came into force yesterday and will last for a minimum until December 30th will come as a shock to customers and businesses that were starting to look forward to a brighter Christmas trading period.
The main rules affecting hospitality and entertainment sectors include:-
As well as the West End, various local theatres that were preparing for their annual pantomimes will now be closed.
Many professional sports teams who were looking forward to welcoming some fans in for the busy Christmas period will now be playing to empty stands once again. Even the famously rambunctious PDC World Darts Championships at Alexandra Palace will only have one night of spectators before the players throw in a cavernous empty hall for the duration of the tournament unless restrictions are lifted at the first review date.
UKHospitality chief executive Kate Nicholls said that the move effectively “cancels Christmas” for their members.
She said: “Putting hospitality businesses back into lockdown, which is effectively what Tier 3 amounts to, is not going to tackle increasing infection rates. There’s still no hard evidence that hospitality venues are a significant contributor for the spike in infections. Cases were higher at the end of the last lockdown - during which hospitality was shut down - than at the start.
“The Government is cracking down on hospitality for an increase in the infection rates that occurred during a period when hospitality was forcibly closed. It makes no sense.
“So many pubs, restaurants, bars, cafes and hotels, having invested so much to make their venues safe, are only just clinging on by the skin of their teeth, but will be forced to take another huge hit.
“The burden of a region being moved into Tier 3 falls almost exclusively on hospitality businesses. It’s an illogical tactic that fails to tackle Covid effectively but does push businesses closer towards failure.”
She was joined by Eddie Curzon from the Confederation of British Industry (CBI) who said: “Retail and hospitality businesses will have been counting on a festive filip to help mitigate months of hardship, and further restrictions now will come as a devastating blow. Thousands of jobs and livelihoods could be at risk.”
Emma McClarkin, chief executive of The British Beer & Pub Association said: “This could completely destroy many pubs in London, Herts and Essex who have taken bookings for the lead up to Christmas and New Year’s Eve if the tiers don’t change before then.
“In London alone, it will see the final 1,250 pubs who remained open in Tier 2, supporting 8,000 livelihoods close. The survival of the great British pub as we know it hangs in the balance.”
Sadly she might be right.
Since the first lockdowns were rolled out in March, 2020 has been a near-extinction level event for the hospitality and restaurant industry.
Many profitable going concerns, through no fault of their own, will be forced into insolvency especially if there is no respite this or early next year.
But this doesn’t have to mean the end for them.
There is currently a small window of opportunity that pubs, restaurants and cafes could take advantage of to protect their businesses.
An Insolvency Moratorium allows a company to have an automatic 20 day freeze on all creditor recovery actions which can also be extended for another 20 days or longer if necessary.
The moratorium stops:-
The valuable time the Insolvency Moratorium buys allows the business to work with an insolvency professional to work out how they can restructure their company to survive the current storm and reemerge in a stronger form to grow again once vaccines are rolling out and tiers are being lifted.
Get in touch with us today to see how you and your business can benefit from an insolvency moratorium or other business rescue processes like administration or a CVA.
Nobody knows how the next few weeks will play out but it’s going to be expensive even for well-financed hospitality businesses.
Even if you have the resources and the will to navigate these incredible times, there’s help available to make it easier.
Then you can hopefully begin to look forward to a happier New Year.
Some may remain, some may close and others might just exist in cyberspace under the same or new owners. The situation is that fluid.
There’s a strong chance that they’ll all remain open and trading throughout the whole process too.
This is why we’ll answer a question we get asked a lot in this situation - how can a company keep trading if it’s in administration?
Keeping the lights on
If an administrator takes control of a company then their responsibility is to make sure that creditors are treated fairly and that their interests are considered first.
So the administrator has to consider what course of action will give the best chance of securing the creditors the best possible return.
It can be a takeover by another group or existing management through a buyout. It could also be through the sale of part of the business, or if there’s no realistic chance of recovery then assets could be sold and the business placed in liquidation.
But if the company is otherwise viable, trading its way out of trouble might be the best chance to secure higher returns for creditors and ultimate security for staff and other invested parties.
The first thing to make clear is that a company can legally trade when it’s in administration.
If the business is to be sold as a going concern then trading in administration not only helps preserve its value but maintains this continuity of service.
Light touch, not a soft touch
In some cases it’s necessary and appropriate for an administrator to take the reins themselves and take control of a business to steer it away from imminent disaster.
But for others, they might decide that it’s better to delegate the day-to-day running of the business to the existing management. This is generally known as a “light touch” administration.
The administrator still retains ultimate responsibility and authority but there’s other good reasons to do this.
It’s the most cost-effective solution, it provides a degree of continuity and certainty to employees at a stressful time and it frees up the administrator to get on with their main task - completing a strategy that will enable the company to survive in the longer term.
Occasionally an administrator might bring in their own management team to run the company on their behalf while focusing on rescuing the business but again, they’d ultimately retain legal responsibility for any decisions taken while the company is under their purview.
One of the benefits of administration is that it’s an adaptable system. It’s not a one-size-fits-all solution and never has been.
The UK’s insolvency regime is respected across the world because it retains a good balance between the interests of debtors and creditors while still being agile and entrepreneurial enough to adapt to the circumstances it has to.
“Light touch” administration is just one variant of the range of approaches administrators can take to get a business ready to leave administration in the best possible shape.
Out of all the methods of exiting administration, the CVA is the most common.
Company Voluntary Arrangements (CVA) sees creditors agree to waive a proportion of outstanding debt in return for reduced but regular repayments over a longer period, usually five years.
Landlord creditors might also have to agree to changes in rent calculations including payment holidays and/or a switch from a rateable valuation of the property to a turnover based model.
This is where the company pays rent according to how much business is being generated at the location - another reason why trading in administration would be preferable to a landlord.
The legal protections provided by a CVA also removes the threat of any legal action as long as the obligations of the agreement are met and maintained.
Once all the repayments have been made and HMRC certifies this is the case then the business emerges from the CVA and can literally get back to work.
Administrations are usually seen as dull or dry business stories but in reality their success or failure affects thousands of people and their livelihoods.
Not just the staff employed in stores and their families, but pension funds that have invested in these companies, banks and other lenders that have lent them money and want to recoup their investments and small investors that have invested their faith and money into a venture.
If you’re worried about how your business will make it through an uncertain Christmas and winter trading period then get in touch with us today.
One of our experienced team of advisors will contact you to arrange a free, virtual consultation where we can get an understanding of your position and outline your choices.
While they vary depending on the precise situation, one thing we can say with certainty is the earlier you tackle the issue and get in touch, the more leeway you’ll have in any decisions you’ve got to make.
This December 1st however, in this already incredible year, will be remembered for the owners of some of the biggest names in UK retail going into administration overnight and the imminent closure of another.
Debenhams have announced that they intend to wind down the business and close all of their remaining 124 stores.
The company was already in administration and had been seeking a buyer for the group since the Summer but the sale process had “not resulted in a deliverable proposal” and after the last credible bidder, JD Sports, announced they were ending discussion over a deal, the result was inevitable.
The next step is that the Debenhams businesses will be liquidated.
Stores will remain open to sell off any remaining stock but if no buyer is found once all the stock is sold then the stores will close and the 12,000 remaining employees will lose their jobs.
The brand and online elements may be salvageable, but in reality little else.
The administrator said: “All reasonable steps were taken to complete a transaction that would secure the future of Debenhams. However the economic landscape is extremely challenging and, coupled with the uncertainty facing the UK retail industry, a viable deal could not be reached.
“The decision to move forward with a closure programme has been carefully assessed and, while we remain hopeful that alternative proposals for the business may yet be received, we deeply regret that circumstances force us to commence this course of action.”
The Arcadia group also went into administration last night.
13,000 employees continue to work for the Topshop, Topman, Dorothy Perkins, Miss Selfridge, Wallis, Burton and Outfit brands that make up the group’s high street presence but will obviously be worried about their future prospects.
They currently remain open and continue to trade while administrators look to find buyers for all or more likely, parts of the group.
Chief Executive Ian Grabiner said: “This is an incredibly sad day for all of our colleagues as well as our suppliers and our many other stakeholders.
“The impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands.
“Throughout this immensely challenging time, our priority has been to protect jobs and preserve the financial stability of the group in the hope that we could ride out the pandemic and come out fighting on the other side. Ultimately, however, in the face of the most difficult trading conditions we have ever experienced, the obstacles we encountered were far too severe”.
Arcadia had already entered into seven CVAs with creditors, one for each brand, in 2019 to help offset its debt burden and reduce rents. The idea was then to free up funds to massively up its digital game, which is a sensible course of action for any retailer.
The emergence of Covid-19 and lockdown meant that strong digital market leaders such a Boohoo and Asos were able to build on their existing advantage and pull away.
Any digital investment and innovation from Arcadia would have been too little, too late with too much ground to make up too quickly against agile and innovative competitors.
With more time and investment (and no pandemic), Arcadia might have been able to turn their ship around but ultimately ran out of both.
Arcadia’s decision to enter administration when they did is also a blow to HMRC as a change in insolvency law comes into force today.
Crown Preference is now back on the statute books and means that HMRC are a preferential creditor in liquidations. This means that they have a higher priority for payment over other, unsecured creditors.
By going into administration hours before the rules changed, HMRC will possibly miss out on millions of pounds which could now go to other creditors instead.
Sir Ian Cheshire, former chairman of Debenhams, pointed out a key component of the story - that Debenhams and Arcadia were each other’s biggest customers. The collapse of one was going to have a material negative impact on the other and both’s chances of survival.
Miss Selfridge and Dorothy Perkins were amongst the most prominent concession operations running within Debenhams and generated approx. £75 million in sales last year.
This is a sizable hole for any retailer to fill even in boom times.
Sir Ian surmised the existential challenges facing both groups: “How fast can you change when you are stuck with long leases and fixed costs, when the internet, athleisure and a degree of value players who have emerged means you have to evolve so much faster?”
The demise of Debenhams could ironically mean it’s even harder for Arcadia to find buyers in the short term as suddenly there’s a huge closing-down sale beginning on their very doorsteps.
2020 has made everybody question their assumptions and beliefs.
What is permanent and solid today is the answer to a trivia question tomorrow. Having a history and a strategy for future growth are important but are either as important as what’s happening now?
Making a decision today might make all the difference down the road. Not taking a choice now might close off a future route to recovery and seal the fate of a business.
The only thing that is really under anybody’s control is their own reasoned choice - how they choose to react to any situation or set of circumstances.
And while we appreciate and encourage decisive action, we always think it’s better to get an opinion on that action first.
We’re available right now to arrange a free consultation about how you can protect and help your business get through this fraught festive period.
Because if 2020 should have taught us all one lesson - it’s that if it can happen to Arcadia and Debenhams, it can happen to anyone.