We all know that retail businesses have had a hard time lately. High rent and rates are a fixed overhead as our staff costs to keep a shop open. Even online businesses have suffered as marketing costs have risen as web search terms become more expensive.
Then add to that the enforced close down due to the virus. It is not a good time to be a retailer.
Some of the options available to shops and chains of shops are set out below.
The three main options for struggling retailers
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:
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.
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.
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Licensed Insolvency Practitioner