But for retailers feeling the squeeze from over-rented premises, pension deficits, capital restructure or onerous critical contact, the Company Voluntary Arrangement (CVA) may be an appropriate solution.
The CVA has evolved from a bridge to insolvency to a route to survival which can be tailored to the individual entity’s circumstances. It allows the directors to retain control while sheltering the wider business under the Insolvency Act, meaning the outcome for stakeholders is significantly better than in any other form of insolvency. Many companies would also benefit from restructuring to decrease costs or increase margins.
The story for retail is a complex one, and it is unlikely that the high street will experience a ‘quick fix’ solution to its woes.
Challenging times
One thing remains certain – there are challenging times ahead. If you’re feeling the pinch, it may be time to consider a CVA as a method of achieving or enabling a wider restructuring. A CVA can facilitate the continuation of a core profitable business and the legal entity, preserving jobs and stakeholder value. It is flexible and rapid: all that is needed is between 14 and 28 days’ notice of a creditors’ meeting. It is also a potential alternative to more disruptive forms of formal insolvency.
An alternative formal process to perfect or expedite a restructuring or debt-for-equity swap may involve a Companies Act Scheme of Arrangement. This process can use a majority vote to achieve the desired result, reducing the likelihood of hold-out positions disrupting the restructuring.
Early but effective communication is critical
- Should a conversation be needed with a retailer’s bank(s), early and clear explanation is crucial to reach any agreement - especially when faced with a tight timetable
- In addition to a constrained lending appetite from banks, these situations are often defined by a limited negotiation position, making clear strategic advice a powerful tool
- KPMG’s Debt Advisory team has significant experience and is currently working with a number of High Street retailers on both of these areas. We welcome opportunities to extend the knowledge and experience gained to help other retailers
How KPMG can help
KPMG's Restructuring practice implements solutions in situations of stress and distress. We continue to have the biggest market share in this area.
Working alongside lenders, stakeholders and all levels of management, our professionals plan and deliver restructuring actions that can provide improvements to cash flow, profit & loss and the corporate balance sheet.
KPMG provides innovative uses of Companies Act and Insolvency Act processes to achieve commercially viable outcomes. Our highly experienced, objective team has a strong commercial approach allied to extensive technical knowledge – we have a proven track record in turning around struggling retailers. We take a practical and pragmatic attitude to issues, applying our extensive technical knowledge of UK and overseas processes to the legal and commercial situations in which we are involved. We also work closely with legal advisers to provide options that are legally and commercially feasible.
