Company Voluntary Arrangements (CVAs) are unlikely to save struggling North West retailers from administration according to new research from Colliers International.
The Colliers’ study showed up to 10 store closures in Manchester resulted from CVA insolvency process and administrations in 2018, with a further five in Chester.
Facing the need to shut sites and reduce rents to keep trading, a number of businesses primarily in retail and casual dining have looked to a CVA, a process which allows them to shed unprofitable sites and agree rent reductions with landlords to avoid the possibility of entering administration.
Toys R Us, Maplins and Jacques Vert have entered administration in 2018 with New Look, Byron, Prezzo, Select, Carpetright and House of Fraser seeking CVAs.
David Fox, head of retail agency North for Colliers International (pictured), says 44 companies entered administration in the past 10 years without first undertaking a CVA.
While almost 40% continue to trade, more than 80% of operators which agreed a CVA subsequently entered administration anyway.
Half of the companies that went into administration following a CVA were revived albeit in a significantly different size and shape. All of them survived by being bought out of administration in a pre-pack deal by other operators.
Fox adds: “So far in 2018, we have seen a flurry of new CVAs, in some cases from companies which would not be associated with failing brands and large debts. It is our view that the CVA process is being used opportunistically by some retailers to free themselves from leases on underperforming stores.
“Without conducting a thorough business review and restructure, significant cost reduction, debt reduction and a cash injection, CVAs in isolation are unlikely to be successful and therefore, should not be relied upon as a means of saving a company.”