Insolvency Practitioners and Retail Failures

Christmas is Coming. Prediction for Retail Meltdown in January 2018

Antony Batty, of insolvency practitioners Antony Batty and Company met with a leading London retail agent in mid-November. They were predicting major retail failures in January 2018, following poor trading figures for the Festive Season. This view is corroborated by recent research carried out by IHS on behalf of VISA, which makes sobering reading for this year’s Festive Season.

This article looks at why retailers are under so much pressure, perhaps more than ever, and gives some advice from our team of insolvency practitioners on how retailers can help themselves to following a bad Festive Season trading period.

Why is a Retail Meltdown Predicted?

The traditional High Street retailers are being challenged by low cost, web retailers operating from remote warehouses such as Amazon, and many have been unable to react quickly and decisively enough to meet this rising challenge.

When you consider that some retailers earn 70-80% of their profits in the period Oct – Dec, and that for the rest of the year they largely operate at a loss, it is easy to see why a poor Festive Season can be terminal.

Indeed, in addition to the move away from the High Street (the online shopping market is growing at a rate of 10-15% annually, whilst High Street spending is falling by about 2% year on year) and the drop in real incomes, many retailers are facing an-imperfect storm due to:

It is for these reasons that this year, unfortunately, already looks like being another big year for retail insolvencies. Most recent statistics show that 37 companies have already failed by September 2017, affecting 1,284 stores and sadly over 11,000 jobs. High profile casualties include Jaeger, Agent Provocateur and Just for Pets.

What Happens When Rent is Overdue over the Christmas Period?

Experience suggests that tenants experiencing financial difficulties, especially when they can’t pay the rent on the due day, sometimes use the special timing circumstances of the Festive period to struggle through in the hope that better times are ahead. This is because rents are traditionally due on ‘quarter days’, one of which is 25 December. Clearly most landlords’ offices are closed on 25 December, indeed most are closed from around 24 December to 2 January, therefore it often takes several days into the New Year for landlords to establish which tenants have defaulted.

In the meantime, most retailers start their sales on 26 December, and a lot of surplus stock can be sold before Landlords realise the quarter’s rent has not been paid.

In addition, The Insolvency Act, 1986, provides for a ten day business moratorium on legal action if a Notice of intention to appoint an Administrator (”NOI”) is filed in Court. Clever timing could mean that a defaulting tenant who files a NOI on say 3 January, can trade until mid-January, whilst ensuring their landlord cannot take any action against them. Once again, much stock can be sold during this period.

The concern here, of course, is that if things haven’t improved sufficiently by mid January in order to pay the rent, along with the prospect of better trading in the new year, then the position for the retailer is likely to be even worse. In addition, trading when rent is unpaid and due could be construed as wrongful trading.

Advice for Clients from Our Insolvency Practitioners

As insolvency practitioners, there is much we can do to help under pressure retailers, from restructuring and turnaround advice, to dealing with creditor pressure (including HMRC) and late payment. The sooner you seek advice, the more we can do to help.

A sure sign of difficulties is being unable to pay rent.  Do not wait until your rent is over-due, contact us or call us now on 0207 831 1234 for help and advice.

Two important points need to be made:

Wrongful trading and the wrongful preferment of creditors can lead to misfeasance claims and director disqualification, adding to the woes of insolvency

Why Use Us?

Antony Batty & Company LLP has significant retail experience, having acted on many retail insolvencies, including:

If you are a retailer, or have a retail client, and you are facing the prospect of insolvency, the sooner you contact us or call us (0208 088 0633) the more we can do to help. We’re here for when it isn’t business as usual.