Retail and Online Retail

Case Study 1 Chain Of Beauty Salons Losing Trade Following Pandemic

The Challenge

A chain of beauty salons in Scotland, which had experienced strong growth with a predicted turnover of £2.5m in 2020, faced a severe crisis due to the COVID-19 pandemic. The company’s expansion plans had committed it to large liabilities, which became a significant burden when business was forcibly shut down during the lockdown. Due to the nature of their services, the salons were not allowed to reopen as quickly as other retail businesses. Post-pandemic trade did not rebound as hoped, leading to a substantial liability with HMRC of £426,000. The directors, believing the business was still viable, sought help after HMRC had already served a winding up petition. Prior to RMT’s involvement, they had received advice not to pay HMRC, which contributed to the tax authority’s aggressive action.

The Solution

The company engaged RMT, who immediately took swift action. Their first priority was to persuade HMRC not to advertise the winding up petition and to ultimately withdraw it. Had the petition been advertised, it would have likely meant the end of the business. Once the immediate threat was neutralized, RMT advised the company to propose a Company Voluntary Arrangement (CVA) to its creditors, including HMRC. The CVA was designed to provide a structured and manageable way for the company to repay its debts while continuing to trade. The company also implemented strong financial controls and cost-cutting measures to ensure its long-term viability. The CVA proposal was submitted to creditors, detailing the repayment plan.

The Results

The CVA proposal was successfully approved by creditors in November 2022. The outcome provided a clear and structured path to recovery. As a preferential creditor, HMRC is set to receive a full 100p in the £1 of its debt over the five-year term of the CVA. The remaining unsecured creditors will receive 33p in the £1. This solution was based on the belief that since the business was successful before the pandemic, it had the potential to be successful again. The CVA provided the company with the breathing room it needed to implement cost controls and focus on rebuilding its customer base. By avoiding liquidation, the CVA saved the business, its assets, and provided a better return to all creditors than a winding up would have, which would have likely resulted in zero recovery. This case highlights the importance of acting quickly and securing expert advice to navigate a crisis.

Case Study 2 Manchester Multi Store Retailer Struggling Due to Competition and The Economy

The Challenge

A multi-branch branded clothing retailer in the Manchester area, with a turnover of approximately £2.4 million in 2018, was facing severe financial difficulties. Despite its established brand, the company was struggling due to a combination of factors, including a downturn in the economy, increased competition, and high fixed costs. A number of the company’s retail outlets were underperforming, and the high expenses for staffing, utilities, and rates were a major drag on profitability, resulting in a loss of £1.7k for the year. The directors had identified these issues and were looking for a formal mechanism that would permit them to restructure the business and address these unsustainable costs without resorting to liquidation.

The Solution

The directors contacted RMT who was appointed on May 6th, 2019, to assist with a Company Voluntary Arrangement (CVA). The CVA proved to be the ideal vehicle for a multi-branch retail operation to implement a radical restructuring strategy. As part of the plan, the company used the CVA to terminate the leases on three underperforming shops in Manchester and its warehouse. This was a critical step in reducing fixed costs. The company also dealt with claims for Retention of Title from creditors, which could have led to all stock being removed and the company being unable to trade. The directors navigated this challenge to ensure the company could continue its operations. The CVA also enabled the company to make eight redundancies, with the resulting claims included in the CVA. The plan proposed a dividend of 42 pence in the £1 to creditors.

The Results

The CVA was a resounding success, being approved by 77% of the creditors at a meeting on September 15th, 2019. The CVA allowed the company to significantly restructure its operations and financial obligations. By closing three unprofitable stores and the warehouse, and renegotiating leases on two other remaining units, the company was able to reduce its fixed costs by an impressive 40%. The CVA also provided the legal framework to save 19 jobs, while managing the eight necessary redundancies. The company successfully paid a dividend of 42 pence in the £1, which included a claim for the redundancies. This case demonstrates the power of a CVA as a flexible tool for restructuring a retail business, allowing for the termination of unprofitable leases and the reduction of overheads to create a leaner, more viable company.