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, namely BHS and Austin Reed.
BHS entered into a company voluntary arrangement (CVA) with a 95 per cent creditor approval. It included landlords of 87 (out of 164) stores agreeing to a 75 per cent 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 accepting the lesser sum offered or face the reality of 100 per cent write-off if an alternative route is demanded.
At PBC we have assisted numerous companies to restructure and survive using the CVA as the vehicle. Sometimes it can be a simple case if we can see the wood from 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!
If you find yourself or your business in financial difficulty, PBC Business Recovery offers a free one-hour consultation to give you initial advice and outline your options. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially, email or visit www.pbcbusinessrecovery.co.uk for further information.
