Watch out for a bun fight over "sale and return" between the administrators/buyers and publishers. The book trade works on that principle.
So a test of retention of title, ownership of stock, and "cash is king" for Phil Duffy and his joint administrator(s). Sorry don't know yet who the MCR appointees are.
One year on from Woolworths another retailer fails. Is it cynical me, or are we going to see many more retailers collapse in the next 12-15 weeks?
Hilco, Valco and similar will be busy on their next deals I am sure.
Great shame if this business fails but not really surprising. Having been in retail once upon a time, the depth of stock and old stock at that being carried whenever I visit Borders is breathtaking.
Who will buy all those books? Well, obviously some are on sale /return but nevertheless way too much stock.
So will it be sold, pre-packed or closed?
Under the scheme the landlords of 101 closing stores will receive 6 months rent and rates, this allows them time to re-let the properties and hopefully find stronger covenants.
Once again BBC reporters got it wrong, on text last night the deal was reported as a "compulsory voluntary agreement"! By today that had changed to "company voluntary agreement", still wrong but closer. Keep at it guys you may get there.
Here is an extract from the Telegraph article:
"Some 98pc of landlords approved Blacks' proposed Company Voluntary Arrangement (CVA), which means that the retailer can exit 89 under-performing stores. If the landlords had not passed the CVA, Blacks would have missed out on bank funding and would have had to enter administration.
"It is a massive relief," said Neil Gillis, Blacks' chief executive. Blacks will still pay around six months of rent for the closed stores.
Richard Fleming, UK head of restructuring at KPMG and "supervisor" of the CVA, said: "This is a pivotal moment in the turnaround of Blacks. Without the approval of the CVA, the company faced administration, putting 4,300 jobs and 291 trading stores at risk. As the third CVA of a large company agreed this year, we could well see CVAs becoming a viable and common alternative to administration."
However, Liz Peace, chief executive of the British Property Federation, which represents landlords, argued that the property sector bears all the pain in a CVA".
That last comment is interesting, it is made because these CVA's put forward by KPMG and others seem to focus on one class of creditors, the landlords of unwanted stores.
Most CVA's include ALL unsecured creditors as well as the landlords. But in this case and that of JJB Sports for example, the suppliers, tax man and other landlords of retained shops get 100% of their debts, the closed store landlords get a small dividend.
How long will it be before landlords reject these proposals and demand that ALL unsecured creditors share the pain?
There were 4,716 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the third quarter of 2009 (on a seasonally adjusted basis). This was a decrease of 4.7% on the previous quarter but an increase of 14.6%on the same period a year ago.
Quarter 3 Administrations in 2009 saw a fall of 3.3% versus 2008. (974 against 1,007 in 2008).
So whats going on in the insolvency world? Insolvencies are not rising fast as was expected, why do I think this is?
See here http://www.accountancyage.com/accountancyage/news/2250779/taxman-holds-firm-rise-pay-4847204
In early October the Government announced that it was assisting 210,000 companies with time to pay tax debts by mid September. This helpline has deferred CVAs and administrations and avoided many liquidations. We assume the numbers have carried on rising although HMRC will not confirm stating....."Our current numbers are being validated and we therefore have no figures to give at present,” a spokeswoman said.
Political genius (saving insolvent companies) or fiscal recklessness (creating tax debts that may not be recovered when companies subsequently enter administration or liquidation), time will tell.
How come small companies have to work very very hard, and yet companies like Orange and O2 can get away with chronically bad service, web sites that crash time after time and deliveries get cancelled or postponed????
If my experience this week of trying to buy an iPhone from their shops or online is anything to go by these companies deserve to fail. 4 days on still no iPhone.
Talk to KSA now if you are in need of turnaround or pre-pack funding; 020 7877 0050 or call Keith Steven 07974 086779.
Up to £10m available within 7 days.
We can move like greased lightning to meet you, set out the recovery strategy and get funding on board ASAP.
"The Minister for Business and Regulatory Reform has today made the following Statement.
I am setting out today the Government's response to the recent Insolvency Service consultation on encouraging company rescue.
In launching the consultation, the Government identified the importance of maintaining an effective and fair corporate insolvency framework that enables viable businesses facing temporary difficulties to turn themselves round, helping to preserve jobs and livelihoods. The consultation document invited views on a number of possible measures to further enhance the existing regime, including moratoria for companies that need a breathing space in order to agree restructuring proposals with their creditors, and measures to promote increased access to rescue finance.
More than 50 businesses, individuals, and representative bodies responded to the consultation. The majority of respondents supported the Government's view that despite the challenges faced by business in the current difficult economic conditions, the existing statutory framework for company rescue is performing well, and continues to compare well internationally.
The moratoria proposals were broadly welcomed. Respondents made a number of helpful comments and suggestions as to how the potential benefits could be maximised, whilst minimising the risks to creditors. The Insolvency Service will be taking forward more detailed development of the relevant proposals over the coming months, building on feedback received from the consultation.
In relation to rescue finance, the views of respondents were more divided. A number suggested that in practice the availability of new finance for companies seeking to restructure was less of an issue than had been indicated, and that the need for legislative change was not apparent. Stakeholders also recognised the need to balance the benefits of possible legislative changes against some of the risks, particularly if changes had a negative impact on the behaviour of lending institutions towards businesses in general. Having considered the consultation responses on this issue, the Government have decided that they will not for the moment be taking forward the finance-related proposals. We will however continue to work with stakeholders to monitor the position going forward.
Copies of the non-confidential responses to the consultation are being published today on the Insolvency Service website (www.insolvency.gov.uk), together with a summary of those responses".
So the proposals for so called super secured funding post insolvency such as administration looks like its on the back burner at best. CVA moratoria may be taken further for larger companies and possibly made less onerous for insolvency practitioners (IPs). Plus the consultation asked for comments on the creation of a new, court-sanctioned moratorium of up to three months, this would be intended to allow companies a period of protection during which they could prepare CVA proposals.
KSA would welcome this if the onerous nature of the moratorium for the nominee was diluted.
The good news is that a healthy response to the consultation has led to a good debate on the use of CVAs
Thanks to the Birmingham Post and Jon Griffin!
We highlighted some weeks ago that Blacks was seeking to restructure following the collapse of a subsidiary company and pressure from the bank. Now a CVA (company voluntary arrangement) has been filed and a creditors meeting called for 23rd November 2009
Now read Jon's story....
Dozens of West Midland jobs remain on a knife-edge after crisis-torn Blacks Leisure Group announced a last-ditch bid to save 4,300 jobs nationwide.
The outdoor and leisure group, which is facing severe cash difficulties, announced a company voluntary arrangement (CVA) proposal to try to safeguard the firm and jobs.
The CVA plan follows a string of closures of Blacks, Free Spirit and Millets stores across the West Midlands, including three at Merry Hill, two at Sutton Coldfield and others in Birmingham, Redditch and Wolverhampton.
Blacks, which recently revealed it had under-performed its six-month budget and was at risk of breaching its banking covenants, is now seeking to offload long-term leases on around 90 closed stores in return for six months’ rental compensation. If the move is accepted, the CVA would give Blacks breathing space and save thousands of jobs at 300 stores which are still trading. The company retains a string of stores still open throughout the West Midlands.
Richard Fleming, UK head of restructuring at KPMG and the proposed ‘supervisor’ of the CVA, said: “The proposed CVA gives Blacks the opportunity to preserve 291 trading stores and around 4,300 jobs.
“The CVA proposal is asking the landlords of 101 unoccupied stores to come to a compromise on the company’s financial liability.
“We believe the proposed CVA offers a fair balance between the operational needs of Blacks and the landlords’ rights under the tenancy agreements.
“The total compensation being offered to the landlords is £7.25 million, which equates to approximately six months rent each. In addition and importantly, given the size of the potential liability, the group will continue to pay rates until the leases are surrendered or forfeited in consultation with landlords.”
Lloyds Banking Group, through its Bank of Scotland business, would take a five per cent stake in Blacks following the deal, subject to shareholder approval. Should this not be agreed, Blacks will pay its bank £2 m in cash.
The CVA would last nine months if voted through by the requisite three-quarters of creditors at a meeting on November 23. Blacks has agreed new facilities of £42.5m with LBG as part of the plan.
The remaining creditors have not been asked to compromise financially but landlords of the operating stores have been asked to move to monthly payments for 18 months.
Blacks announced pre-tax losses of £18.1m in the 26 weeks to August 26, up from £6.7m, as its boardwear division and Blacks and Millets stores dragged the group down.
From The Times November 4, 2009
Lord Sugar: struggling bosses are ‘moaners’ who 'live in Disneyland'
Sugar is hardly likely to worry about the bad press but somehow endearing himself to business people should be something he should carefully consider, because, lets see what's his role again?
Oh yes the Times points out that
"Lord Sugar, who is the Government’s Enterprise Champion", said: ““I can honestly say a lot of problems you hear from people who are moaning are from companies I wouldn't lend a penny to.”
He reckons that 85% of the loan applications made to banks should be rejected!
“They are bust. The moaners are bust. They are bust and they don’t need the bank — they need an insolvency practitioner".
Interesting view from a business / enterprise champion?
PS don't ask him for a loan as you may be called a moaner!
So started a conversation with a distressed company director with Keith Steven. After 20 minutes we established the following position.
1. The company had a turnover of £4.4m in the last 6 months. Its had previous year sales of £8.9m.
2. Trade creditors amount to c£506,000.
3. Inland Revenue was owed c£834,893 for PAYE and NIC, various time to pay (TTP) deals had been agreed and reneged upon owing to cashflow pressures.
4. VAT was owed approximately £45,000.
5. Investors funded the MBO that formed the group holding company. Investors had provided loan notes of £5.3m, interest has been accruing and interest stood at £738,365. Directors/shareholders had provided a further £808,000 of loans and interest was accruing as above.
6. The Bank was owed £550,000 on a term loan. It also provides an overdraft of £150,000 to the Group Holding Company. Currently the bank overdraft was standing at £216,000 (nominally). The bank held a debenture with a fixed and floating charge on all monies due from both companies on a charge created 17th November 2006.
Invoice discounting was provided by the same bank. The current facility provided for 85% initial payment. Overall the facility provides an advance of £1.091m. The debtor book was currently £1.329m.
Our caller wanted to know how to stop a winding up petition, how could KSA reorganise the business such that the venture capital backers / loan note holders did not take a complete bath and so that he could invest some money in a recovery whilst removing non performing directors and management. Not an easy challenge!
Given the acquisition had been driven through a "whitewash" procedure to avoid breaching the Financial Assistance rules (s151-153 Companies Act 1985) , the inter company position was that Holdings owed trading co some £700,000. This was never going to be recovered because the only value that Holdings had was 100% of the equity of trading co, it was insolvent and about to enter a administration! Secondly, the loan notes and equity investment were at risk if the trading co entered administration or pre-pack Administration.
We considered pre-pack administration but the bank was not keen on that option nor were the VC investors or the loan note holders (the director was the largest loan note holder). So a company voluntary arrangement seemed the logical answer for the trading company.
To find out more about the innovative solutions that resolved all these seemingly conflicting interests for the VC investor, loan note holders, the bank and invoice discounter, new management and the new investment see this new Case Study here - Leveraged Buy In Management Buy Out">
If you are a venture capital or private equity investor with troubled clients, call Keith Steven on 07974 086779 or Eric Walls on 07787 278527.