Jamie's Italian, the chain of 35 restaurants, has announced that it will be looking for the support of its creditors by way of a Company Voluntary Arrangement (CVA). It is expected that 10 to 12 restaurants will close with the possible loss of 450 jobs. The company is also asking for a 30% rent reduction on 20 of its restaurants. Creditors have until the February 9th to vote. Alix Partners have been instructed to draw up the proposal.
This is the latest in a line of restaurants such as Byron Burgers that have been struggling recently and have looked at using the CVA mechanism. The CVA will allow the company to vacate its underperforming properties and close its branches. See our page on CVA and leases to explain how this is possible.
In order for the rent reductions to be binding on the other landlords, they will need the support of 75% by value. These landlord CVAs are becoming more popular as retailers struggle with high premises costs.
CVAs are not popular with landlords as some see it as a way of businesses just dumping unprofitable stores. However, in order to do a CVA, the company has to be insolvent on one of the 3 tests. In this case, the business can argue that it is balance sheet insolvent as the ongoing costs and liabilities of the unprofitable stores will make the whole business insolvent.
Jamie's Italian exploited a gap in the market between the basic pizza/pasta style restaurants and more high-end Italian dining. The firm grew rapidly in the last few years but according to sources, the costs of labour and increasing food costs are mainly to blame for its problems. Many of the ingredients are imported directly from Italy, so the fall in the value of Sterling against the Euro, particularly, would have a part to play. Other costs such as rents and rates will have also put extra pressure on the chain as many of the restaurants are in prime locations.
If you are a retailer or hospitality business then a CVA can be a very powerful mechanism to save your business. See our page on retailer rescue or give us a call on 01289 309431