Company voluntary arrangements and pre-packs harm landlords, suppliers and staff: Something has to change
With Brantano being put into administration by Alteri and then bought back shortly after (minus key outstanding debts) by – you guessed it – Alteri, it is clear that legislation is required to avoid further misuse of a financial instrument that was originally intended to help retailers through a difficult time – not a mechanism for reneging on debts.
Company voluntary arrangments (CVAs) are arguably less necessary in today’s improving retail market, as retail sales, consumer confidence and the macro-economy have all steadily improved since 2012. Numbers have more than halved between 2012 (54 companies) and 2015 (25 companies). But that doesn't mean CVAs are a thing of the past.
In recent months CVAs, pre-packs and administrations from the likes of Brantano, Blue Inc and USC are good examples of how companies are able to shed debt while the company survives.
It is frankly amazing that Sports Direct could put USC into a pre-pack administration – getting rid of millions of pounds of debt in the process, some of which will be paid for by the taxpayer – only to buy the best bits of the business back with another part of his Sports Direct empire.
Suppliers such as Adidas, Diesel and Converse are owed collectively circa £10m, and landlords £5m from this. USC staff were the worst losers from this however – given 15 minutes notice that they had lost their jobs – a fact recognised in a recent legal battle for compensation.
Alteri and Brantano are by no means an exception – there have been many CVAs since 2008, though the majority have been more of a stay of execution for fundamentally flawed businesses, with precious few true turnaround stories, HMV and Game being notable exceptions.
CVAs and pre-packs can work for all parties if they are executed properly and sensitively – Mosaic Fashions, now Aurora Fashions, is a good example.
Landlords and debtors actively worked with the brands Karen Millen, Oasis and Coast to ensure the profitable survival of each – thereby securing payment of debts owed on terms that worked for everyone.
Too often however, these methods are used as a means to offload shops that should not have been signed up for in the first place, avoid payment of debts to suppliers, and generally get rid of the bad parts of a business while keeping the best bits.
It is a "get out of jail free" card, and morally wrong given the impact it has on those companies that the business going into CVA is indebted to.
Legislation and proper controls are urgently required, or this practice of abusing a CVA position will continue to happen, meaning landlords, suppliers and shop workers will continue to lose out, while administrators, restructuring companies and certain companies will continue to profit.