Arcadia closures: What is a CVA and what happens now?
CVAs have been used by several retailers to shed underperforming stores.
Creditors have approved plans for store closures and rent reductions across Sir Philip Green’s Arcadia group – which is behind Topshop, Evans, and other high street shops.
– What is a CVA?
A company voluntary arrangement (CVA) is a way for companies to avoid administration by persuading creditors – usually landlords – to cut the bills. The premise is, that without a CVA, the company would go bust leaving landlords taking a hit that is not as bad as if they collapsed. Other creditors such as suppliers and the Pension Protection Fund also get a vote, but it is usually landlords who stand to take the biggest hit.
– How popular are they?
In the past two years, several high-profile businesses have used them as a way to survive without resorting to mass redundancies and unpaid bills. The high street and restaurant sector has been particularly heavy users, with rising wage and business rates bills hitting profits.
– Do they always pass?
In the majority of high profile CVAs, they have passed, although there are a few examples where they’ve faced a backlash. Last year’s House of Fraser CVA passed, but was later challenged by landlords. The action contributed to the delay in new funds for the business and its subsequent collapse. Mothercare was defeated on one of its CVA proposals last year, meaning placing its subsidiary Childrens World into administration. However, the rest of the CVA went ahead as planned.
– Why are they such a contentious process?
Melanie Leech, chief executive of the British Property Federation, said: “CVAs are never easy as property owners are being asked to absorb large losses, which impacts the investment that these owners manage, including many of our savings and pensions. All those affected need to believe there is a credible turnaround plan in place to restore the business’ long-term health and safeguard jobs. These are difficult decisions to take, particularly in a pressurised process where landlords are given little time to scrutinise proposals.”
– Why has this one been particularly controversial?
Sir Philip Green and his family’s personal wealth has made this controversial, with commentators calling on the retail tycoon to dip into his own pocket and cover the difference – especially since he paid his wife a £1.2 billion dividend in 2005.
– Can anyone get a CVA?
Anyone with debts that they cannot repay can hold a CVA vote. But, the process is costly and usually only takes place once initial conversations with landlords have taken place, and promises made.
– What happens next?
If any creditors are not happy with the result, they have 28 days to launch a legal challenge to the CVA. Meanwhile, the company will begin enacting the changes, which include 23 store closure as part of the CVA and another 25 as part of wider restructuring plans. This is likely to result in the loss of around 1,000 jobs.
– Which stores will close and when?
No date for closures has been announced but in recent similar situations, most stores have been shuttered within a few months. At least 23 stores have been earmarked for closure.
UK Arcadia Group closures:
– Aberdeen (Dorothy Perkins and Burton)
– Ashton-under-Lyne (Topshop and Topman)
– Bedford (Topshop and Topman)
– Bluewater, Kent (Miss Selfridge)
– Cheshunt (Outfit)
– Fareham (Topshop and Topman)
– Glasgow, Buchanan Street (Burton and Topman)
– Luton (Topshop and Topman)
– Newcastle, Northumberland Street (Outfit)
– Nuneaton (Topshop and Topman)
– Reading (Dorothy Perkins and Burton)
– Salisbury (Topshop and Topman)
– Southend (Miss Selfridge)
– Stirling (Dorothy Perkins and Burton)
– Swindon (Miss Selfridge, Wallis, Evans)
– Swindon (Dorothy Perkins and Burton)
– York (Dorothy Perkins and Burton)
– Cork (Dorothy Perkins and Evans)
– Dublin, St Stephen’s Green (Topshop and Miss Selfridge)
– Dublin, Jervis (Topshop and Topman)
– Dublin, Henry Street (Evans and Wallis)
– Dublin, Liffey Valley (Wallis)
– Galway (Miss Selfridge)
All of the retailer’s 11 Topman and Topshop stores in the US are also set to close.
– How much will this deal cost landlords?
Landlords are facing reductions to their rental income of between 25% and 50% on selected stores. They will also need to find new tenants for any sites affected by closures. However, shop-owners are also worried about the knock-on effects of allowing another CVA through, fearing it could encourage other retailers to use the same tactic. The recent spate of shop closures has also swung the balance in favour of tenants, making it cheaper for operators to pick up new sites.
– How much will it cost Sir Philip and his family?
Sir Philip and Lady Green have already pledged a cash and security package worth £310 million. They will also personally cover a shortfall of £30 million over three years after proposing smaller rent cuts than initially planned to convince landlords to back the CVA.
– Is this the end of the matter?
CVAs have not always succeeded in saving the business from collapsing. The ill-fated BHS tried to use one in 2016, but later went into administration. The same happened to Toys R Us last year. Arcadia will still need to contend with falling high street footfall and competition from online players if it is to survive.