Retail Sector Insolvency

The three main options for struggling retailers

Option 1

One option for this type of business is to close and go into liquidation but for the directors and shareholders to start again. This is usually more suitable for one shop and not a chain.

There are some advantages to liquidation and they are:

• The government Redundancy Payments Office fund pay out any arrears of wages, redundancy, holiday pay and notice pay. Employees cannot normally claim continuous employment rights against a newly formed company under the TUPE rules post liquidation.
• A liquidator an disclaim a lease.
• Unsecured and non-personally guaranteed creditors die with the old company.

Option 2

Another option is to use a Company Voluntary Arrangement (“CVA”). This can be used to trigger paying out staff if stores are closed and can be used to effectively push landlords into changing the terms of a lease.

In a CVA landlords can only normally claim one months rent for dilapidations and 12 months for rent arrears.

There have been a number of retailers use CVA’s lately to close loss-making shops and reduce shop rents and less profitable sites.

Option 3

The third option is Administration. This tends to be used more as a pre-pack Administration to sell a chain of shops to a new company but often with the same owner. Often the instigator of the process is the company shareholder who has also lent funds to the business under a debenture so has control of the Administration process.