Only a month ago we were singing the praises of the CVA and calling them the saviour of the high street following the creditors’ approval of the BHS CVA. (See our earlier blog Move over Mary Portas, CVA’s are the real saviour of the High Street). In the last week, administrators were appointed to both BHS and Austin Reed (Squires are acting for the administrators), which begs the question how effective are CVAs in the retail sector?
CVAs first attracted the attention of the retail sector in 2006. The electrical retailer, Powerhouse, proposed a CVA to obtain a release of lease liabilities and parent company guarantees. Whilst the CVA did not succeed, this was on its drafting rather than on the principle that third party liabilities could be compromised. Although the next retail CVA which was proposed, Stylo Shoes, was rejected, the restructuring community then thought that they had discovered the winning formula with CVAs being approved for JJB Sports, Focus Do It All, Discover Leisure and Blacks.
So where are all these companies now? Unfortunately as the table below highlights, obtaining creditor approval to a CVA does not necessarily lead to the continued success of the company, with only a third of the companies ultimately avoiding administration and continuing to trade.
|Company||Date of CVA Approval||Where is the company now?|
|JJB Sports plc||April 2009 & March 2011||Administration October 2012|
|Focus Do It All||August 2009||Administration May 2011|
|Discover Leisure||June 2009||Administration January 2012|
|Blacks||November 2009||Administration January 2012|
|Fitness First||June 2012||Still trading|
|Travelodge||August 2012||Still trading|
|Mamas and Papas||September 2014||Still trading|
|Austin Reed||February 2015||Administration April 2016|
|BHS||March 2016||Administration April 2016|
For the majority of companies at least, the CVA provided a few more years of trading, whereas for BHS it was only a few weeks. Unfortunately for BHS, the CVA was only part of wider restructuring plan. Although the CVA which was approved by 95% of creditors saw Landlords of 87 of its 164 stores agree to accept rental cuts of up to 75%, BHS’s failure to raise £100m to pay staff wages and continue trading led them to appoint administrators. It has also been well publicised that they have a significant £571m pension deficit.
The companies listed above are only some of the well-known names which have disappeared from the British high street since the recession, joining the ranks of Woolworths, Past Times, Blockbuster, Comet, Oddbins, USC, Tie Rack, HMV, Zavvi and Jane Norman.
Times are tough for retailers. The sector has always been susceptible to changes in the retail patterns of shoppers caused by factors which are difficult to predict, such as the weather, and events which draw the attention of the general public away from the high street such as the Olympics. The move to online shopping, as the stakeholders in many high street retailers will attest, remains a driving force for change on the high street with many retailers struggling to keep up with the pace of this ever changing landscape. Retailers who don’t move with the times put themselves at risk of insolvency, and whilst a CVA can provide a retailer with a breathing space, it can’t always guarantee a solution to the financial difficulties which are often caused by prevailing market conditions beyond their control.