Trouble On The High Street

Mothercare has been in the news lately due to its recent struggle to keep up with the growth of online shopping and increasing competition within the market. With Supermarkets and stores such as H&M and Primark creating their own baby products, it seems that Mothercare has struggled to stay relevant and popular.

One reason for so many retailers failing is due to the increase in online shopping. Consumers are less likely to shop on the High Street due to the convenience of shopping whilst being sat in the comfort of your own home. The Guardian reported that the UK’s High Street suffered 5,855 store closures in 2017, more than in any year since 2010. Mothercare has been closing down stores for over 4 years and intends to announce the plan to restructure on 17th May 2018 when it releases its annual results.

Company voluntary arrangement

The difficulties within the market may result in Mothercare entering into what is known as a Company Voluntary Arrangement (CVA) which is an arrangement controlled by an insolvency practitioner. This follows a report in January that Mothercare’s shares had crashed by more than 30%. At this level, the company was valued at just £77m.

Source: https://www.theguardian.com/business/2018/jan/08/mothercare-profits-sales-debenhams-online

What are CVA’s used for?

This arrangement allows companies to enter into an agreement with its business creditors for payment of its debts over a period of time and prevents the creditors from taking any legal action whilst it is in place. The creditors will vote for the proposal and it must be approved by creditors who are owed at least 75% of the debt. The company is able to carry on trading and the directors remain in control giving them the chance to try and save it. This arrangement is likely to last between 3-5 years.

CVA’s are a useful tool to try and restructure a viable company’s debts so that they do not have to enter into administration as Toys r Us did earlier this year. Carpetright is another struggling company using a CVA which will result in closing 92 stores and the potential loss of 300 jobs.

However, one important thing to bear in mind is that if a company fails to keep up with any of the agreed payments, the creditors can apply to wind it up.

What if you are an individual?

If you are self-employed or a sole trader, you can enter into an Individual Voluntary Arrangement which is an alternative to becoming bankrupt. An IVA will involve making regular payments to an insolvency practitioner and this money will get divided between the creditors. The insolvency practitioner will contact the creditors and the same rule applies in that creditors holding at least 75% of the debts need to support it before it can be approved.

Again, the individual needs to ensure that they keep up with the scheduled payments as the insolvency practitioner is able make them bankrupt.

It is clear that something needs to be done to reduce the amount of failing stores on the High Street but at the minute the only question is, who will be next?

If you or your business require advice on restructuring or CVA's, get in touch with our business solicitors and Head of Department, Simon Fagan, who can provide you with advice today as to how to move your business forward.