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Select Fashion's administrator: Retail CVAs will be rife

Brian Burke

Brian Burke, a director at business advisory firm Quantuma, which oversaw Select Fashion’s administration process last year, says the new Corporate Insolvency and Governance Bill will help protect some retail businesses. However, he predicts CVAs “will form a large part of the future retail landscape”. 

Coming off the back of years of difficult trading and a torrid 2019, the fashion retail sector is incapable of riding out a storm of this magnitude without significant casualties. The impact of coronavirus will undoubtedly result in substantial store closures, job losses, and a deluge of restructuring and business failures.

The previous struggles are well documented: low levels of consumer confidence and the inability to pass rising costs from rent, business rates, minimum wage increases and the volatility and weakness in the value of the pound, onto customers.

The impact of coronavirus has been unimaginable. Manufacturing has stopped, supply chains have been disrupted, stores have closed and consumer demand dropped like a stone. The spring and summer season is a write-off, and retailers are faced with writedowns and excess stock levels that they will need to get to market when restrictions ease, resulting in major discounting and margin erosion in a bid to generate cash.

The government’s initiatives have credibly managed to apply sufficient pressure to stem the flow. For now, this is only effective as the world we know has in effect stopped functioning. The furlough scheme has prevented job losses: without it tens of thousands of staff would have already been made redundant.

Tax deferrals, business rates relief and measures to avert action from landlords are also playing their part in holding back the tide. But these measures are, for some, only delaying the inevitable, and will not be enough once unravelled.

For many bricks-and-mortar retailers, the expectation of restricted customer numbers and services will present a huge challenge to generate sufficient cash to stay afloat. Stores will need to be safe for staff and customers and, in terms of footfall, for consumer confidence to recover at any level, social distancing measures will be required. During lockdown, we have seen more consumers become comfortable with online, so this shift will need to be redressed.

Much-needed liquidity and cash will be a crucial component to survive. Many retailers find themselves unable to access the government’s loan schemes via banks and other sources given the fragile retail market and concerns over their viability given recent performance. In addition, the burden created by taking on additional debt could be unsustainable, as there can be no certainty that past performance can be recovered.

We have already seen insolvencies where the stakeholders are no longer willing to lend or invest further in businesses. Given the number of struggling clothing retailers, many more administrations will be unavoidable, and purchasers will look to cherry-pick prize assets and selectively acquire brands, online capability and a limited number of performing stores. The remnants discarded and closed.

Likewise, the heightened engagement between retailers and their key suppliers and landlords will become commonplace and the new normal. I expect to be using the new Corporate Insolvency and Governance Bill to provide protection and put forward restructuring plans, along with company voluntary arrangements.

These will form a large part of the landscape as directors and stakeholders seek to retain control while they explore the art of the possible and implement measures to restructure their businesses in an attempt to address the impact of Covid-19 and survive. 

What is the new Corporate Insolvency and Governance Bill?

On Wednesday 20 May, the Department for Business, Energy and Industrial Strategy (BEIS) introduced the new Corporate Insolvency and Governance Bill. The measures in this Bill aim to help relieve the burden on businesses during the coronavirus (Covid-19) outbreak and allow them to focus all their efforts on continuing to operate.

The Bill will introduce temporary easements on filing requirements and annual general meetings (AGMs), introduce new corporate restructuring tools to the insolvency regime to give companies the time they need to maximise their chance of survival, and temporarily suspend parts of insolvency law to support directors during the crisis. 

Temporary easements on filing requirements and AGMs will include more flexibility around when and how AGMs are held, and extensions to deadlines for accounts, confirmation statements, registrations of charges (mortgage), and event-driven filings, such as a change to your company’s directors or people with significant control. 

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