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The Troubled High Street

The High Street is in trouble. Very high rates demands, falling demand due to oversupply and competition, and the threat from online retailers, even in the restaurant business, means that the High Street is experiencing a rise in corporate failures, reflected in the number of CVAs, liquidations and administrations. Whether a Brexit, hard or otherwise, will make matters worse by choking off the supply of cheap labour remains to be seen. Some have argued that the new business model that provides almost any type of cuisine from almost any restaurant, depends solely on very cheap labour willing to shoot about on high powered mopeds for a piece rate. Whatever the causes, government and local authorities are struggling to come up with a coherent response. Some have called for an abolition of business rates or at least a downwards only re-rating. Others are calling on councils to relax planning laws to accommodate more leisure activities on the High Street and allow conversion of commercial properties into residential ones.

The fact remains that businesses are failing at a rapid rate, liquidations and administrations are accelerating, and public policy changes are unlikely to halt the decline given online competition in all its various forms. The question therefore is what should be done to rescue businesses that are faced with failure due to high costs and falling demand and when is a CVA or administration appropriate over a liquidation and orderly closure.

Much has been made in the press about corporate voluntary arrangements (CVAs) and their effectiveness in rescuing the business at the expense not only of creditors owed large sums, but also of landlords being asked to reduce rent charges on marginally profitable stores. In essence, a struggling retailer will in many cases be in a situation where it cannot survive without a significant reduction in costs of which rent will be the major component.  A CVA proposal to creditors, coupled with an administration to protect the company until the proposal can be prepared, will therefore, out of necessity, propose to landlords that rents be cut on marginal shops in order to support a profitable business going forward. Landlords may, however, decide that they need to be convinced of both the necessity for reducing rents and the period over which this reduction is needed i.e. why should the landlord reduce rents for the remaining term of a longish lease only for shareholders to benefit from higher profits. Integral therefore to the proposal will be a detailed profit and cash forecast for say five years that demonstrates the change in profitability possible as a result of a successful CVA and may therefore lead to landlords being offered a share in future profits to compensate for the short term loss in rent. Central to the argument will be a demonstration that the CVA provides a better outcome to creditors than a liquidation.

Gore and Company Licenced Insolvency Practitioners can assist struggling retailers and restaurants to put together a realistic CVA that has a high chance of approval. Working with the Board to ensure that the CVA meets the needs of the company, we will work with creditors to ensure their support. Work will include the completion of projections and a turnaround plan that takes account of cost cutting options.

Please note that the above is provided for illustration purposes only and comprises a short view of extremely complex insolvency and other legislation. This is a complicated area and specific advice must be sought before undertaking any course of action or before refraining from any course of action. Gore and Company takes no responsibility for any loss incurred to or by any person who either acts or refrains from acting on the basis of the above or of any other item published on this website. The above note may not be reproduced without the prior written consent of Gore and Company.

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