Arcadia: saved at the eleventh hour
On 12 June, Arcadia’s landlords gathered together to vote on whether to agree to the terms of the proposed company voluntary agreement (CVA). The rescue plan involved store closures and a reduction in rents across 194 of its 566 UK and Ireland stores over a period of three years.
Arcadia had already secured the backing of the Pension Protection Fund, various landlords and many of its suppliers although one landlord, the shopping centre operator Intu, was not willing to support the deal. As one of Arcadia’s largest creditors, this resistance placed any potential CVA into jeopardy.
Eventually, after a five-hour discussion, sufficient numbers of Arcadia’s landlords agreed to rent cuts, 23 store closures and 520 job losses, with more to come once the CVA is in operation.
Sean Moran, our insolvency partner, discusses what the Arcadia CVA means for the High Street:
Although it provides a solution for now (subject to any legal challenge a creditor could bring within 28 days of the approval of the CVA) it does not mean Arcadia is necessarily safe and sound. The Group’s portfolio of stores will be significantly reduced, leading to further vacant units on the High Street.
CVAs have been challenged for the way different classes of creditor, and different landlords, are treated. Landlords are increasingly keen to negotiate with businesses by connecting future rents to turnover. Arrangements such as these create a shared interest in the financial success of the company between landlords and tenants, yet they are not straightforward to implement with the effect of online sales being just one variable that has to be considered in the calculation of a store’s turnover.
As a further reaction to recent developments other high profile retailers are seeking rent cuts from their landlords, as they feel CVAs have handed their competitors a commercial advantage.
Although store closures are causing a huge strain on the High Street, it is unlikely that the Government will offer to help the situation, in order to avoid interfering with market forces.
Until the High Street changes the way it functions to keep up with the popularity of online shopping retailers will continue to struggle. There are however still successful bricks and mortar operators out there, who provide an example of how to thrive on the High Street.
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