How many High Street retailers can you think of whose name has been confined to the annals of history? I can think of 15 and that excludes the latest to fall victim, being BHS and Austin Reed.
BHS entered into a company voluntary arrangement (“CVA”) with a 95% creditor approval. It included landlords of 87 (out of 164) stores agreeing to a 75% cut in rentals as a compromise for helping the retailer survive. So why did the CVA fail? It may surprise readers to learn BHS was the eighth High Street retailer to attempt entering into a CVA as a form of restructuring. However, only two of them are succeeding. A big problem for businesses of this scale is the enormous sums of money generally employed. For example, in the case of BHS they needed to raise £100 million to cover wages and trading costs when as a rule suppliers tighten up credit and supply terms post CVA approval.
CVAs were designed as a tool for restructuring businesses that were enduring short term cash flow issues. Behind it there should always be a core viable business where some operational changes may turn the company fortunes around. The benefits to creditors include a better return than alternative insolvency procedures and, in most cases, they preserve a customer going forward.
Provided the CVA proposals are realistic the principal risks to a successful CVA are the impact of unforeseen issues (such as a detrimental impact on the field of trade or adverse weather where the company operates in logistics, for example) and creditors imposing onerous demands that will doom the CVA to fail. Many times creditors will simply reject perfectly good CVA proposals due to a lack of understanding. That is not a criticism of the voting creditors; merely a fact they are being asked to accept not being paid in the short term, the payment they receive is likely to only be part payment and would you also continue trading with the insolvent company as if nothing happened. The real point is accept the lesser sum offered or face the reality of 100% write-off if an alternative route is demanded.
At PBC we have assisted numerous companies restructure and survive using a CVA as the vehicle. Sometimes it can be a simple case of we can see the wood for the trees. The more successful outcomes arise where directors/partners seek advice at an early stage before the creditors’ antagonism reaches uncompromising levels where biting off your nose to spite your face may prevail in their voting attitude.
Oh, for those readers still wondering who the 15 retailers I could think of they are……. available on request!
At PBC Business Recovery and Insolvency we can advise you whether a CVA is appropriate. If appropriate, we will firstly assist you with the preparation of the proposal and then act as nominee and convene the meeting of creditors. Should the proposal be approved, we will then act as supervisor.
PBC Business Recovery & Insolvency offers a free one hour consultation to discuss your situation and the possible options available. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.