The popular but controversial restructuring tool used by struggling retailers to stave off closure is, more often than not, simply putting off the inevitable, new analysis suggests.
Of 23 large company voluntary arrangements entered into by businesses since 2016, 13 of those companies have since gone into administration, according to Colliers, the commercial property adviser. They include famous names including BHS, Austin Reed, Jamie’s Italian, Supercuts and Mothercare.
Embattled retailers have turned to CVAs in an attempt to slash their rent bills as shoppers gradually desert the high street. A CVA is an insolvency tool that allows businesses to renegotiate their debts with creditors and to pay them back over a set period of time.
“CVAs were designed to help struggling businesses, but they do nothing to address high debt levels, which often require restructuring, refinancing or a debt write-off,” David Fox, co-head of retail agency at Colliers, said.
“For many brands, the CVA fails. It is clearly not a mechanism that can be guaranteed to deliver a long-term viable solution. It merely just delays the inevitable future failure and pushes out the problems for the next couple of years, creating even more polarisation in the market place.”
The rapid rise of CVAs has led to some hostilities between retailers and property owners, which have taken issue with fashion chains pursuing rent cuts before the end of their contracts.
Sir Philip Green had to sweeten the terms to win over rebellious landlords when he pursued a CVA for his Arcadia retail empire in the summer. Landlords had resisted on the grounds that his family had taken huge dividends from the business rather than investing in his fashion brands, which include Topshop and Miss Selfridge, or its stores.
“By definition you are dealing with an insolvent company and therefore you would expect a high degree of failure, but that doesn’t mean you shouldn’t give a company the opportunity to fix its fortunes,” Will Wright, head of regional restructuring at KPMG, said.
Clintons Cards was sold in a pre-pack administration deal to its American owners after landlords rejected plans for a CVA. However, the growing crisis in retail is forcing some landlords to agree to steep rent cuts of 30 per cent when leases come up for renewal. Jacqueline Gold warned that she would have to pursue a CVA unless landlords agreed to cut the rent for her Ann Summers lingerie chain of 100 stores.
Intu, Hammerson and Westfield, the shopping centre owners, recently blamed CVAs and shop closures for rising vacancy rates and a steep fall in the value of their assets. The number of closures has jumped by almost 30 per cent from 675 in 2018 to 870, according to official figures.
