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Landlord concerns over Blue Inc CVA

Blue Inc landlords have raised concerns over the future of the business after it filed for a company voluntary arrangement (CVA) last week.

The struggling menswear retailer appointed Kirstie Provan and Gary Shankland of business recovery firm Begbies Traynor as advisers in relation to the proposed CVA. It wants to reduce rents and shut unprofitable stores, just over a year after going through a pre-pack administration.

But some landlords told Drapers they were unconvinced the CVA process would save Blue Inc.

“It has every chance of going under again,” said one landlord. “There is a new management team in place and they are investing in the business but I don’t hold out much hope.”

Another landlord agreed: “The concept of a CVA for good retail businesses that are in financial difficulty makes sense, but I have lost count of how many times Blue Inc has been in difficulty. When used properly CVAs can work but I don’t think this one will.”

However, he said most landlords would vote in favour of the CVA as they felt they had “little choice”.

“Landlords will vote it through with gritted teeth as the last thing they want is another empty store in this tough market,” he added.

Mark Robinson, property director at shopping centre owner Ellandi, agreed with this sentiment: “The vast majority of property owners are resentful about the way CVAs are used as they target one form of creditor. It is unjust. That said, when a retailer is in trouble you have to support it. We’d like to see the business succeed.”

Allan Lockhart, property director at shopping centre company NewRiver Retail, told The Telegraph he thought Blue Inc’s terms were “reasonable”.

However, he added: “Our experience is that most companies that engage with CVAs ultimately collapse … this is really just a stay of execution, although it will allow them to dispose of a number of stores.”

Blue Inc said the CVA forms part of a wider organisational restructuring and the store rationalisation will ensure the future financial stability of the company.

The retailer wants to shut 33 of its 127 stores as part of a rescue plan and reportedly needs £3m of extra capital to pay for more stock and to service its debt.

Blue Inc has already agreed a deal to outsource its warehousing and logistics operations, which it said has saved it £800,000 a year.

Peter Girt, managing director of Blue Inc, said: “In a challenging market it is vital that we ensure our operation runs as effectively and efficiently as possible as we drive the brand to continue to deliver great product, great service and great price.

”We believe this restructure will allow us to achieve this and protect the interests of our employees, creditors and suppliers.”

Administrators from Leonard Curtis were appointed to Blue Inc subsidiary A Levy on 19 January 2016, resulting in the closure of 76 Blue Inc and Officers Club stores and the loss of an estimated 580 jobs. Blue Inc bought parts of the business back that same day, saving 1,500 jobs across its remaining 157 stores.

Drapers has contacted Blue Inc for a response to the landlords’ concerns.

 

Readers' comments (3)

  • They will go bust.

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  • The Blue Inc CVA is another example of how the insolvency process can place commercial landlords at huge disadvantage when their tenants run into financial trouble, and this is all the more apparent in fashion retail.

    Pre-pack administrations can rob landlords of their rights under the lease, remove their income and financial security, and even prevent them from recovering their property, despite non-payment of the rent.

    The chances are that this CVA will have been a 'fait accompli" with landlords - often a company's largest unsecured creditor - compelled to sign up to unattractive terms, if only to avoid having an empty property and a large business rates liability (thank you ;-) Mr Hammond).

    The highly publicised and drawn-out demise of BHS (to give just one example) is all too fresh in our memories, but here is yet another stark reminder for landlords in the fashion sector, that the law will step in to try and save an insolvent tenant from collapse but often to the severe detriment of its landlord.

    Tom Morton
    Real Estate Litigation
    Fox Williams LLP

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  • Blue Inc. cannot survive and everyone connected with it knows it cannot survive. It will go bust and then everyone will wonder why they gave it a doomed stay of execution! To invest in this corpse is nonsensical.

    If it was a dog, it would be humanely put down, but Blue Inc. will limp on a bit longer milking anything what is left it.

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