Credit Management December 2019

INSOLVENCY SPECIAL
Open all hours
Retail gloom is dominating the latest
insolvency news.
AUTHOR – David Kerr FCICM
David Kerr FCICM
MOTHERCARE is just
the latest in a long
line of retailers
hitting the skids.
There were more than
40 retailers entering
into administration in the six months to
September, according to KPMG, and the
latest quarterly figures released by the
Insolvency Service suggest administration
numbers are rising. A gloomy picture
then, coupled with ongoing rumbles by
landlords around alleged unfairness in
the Company Voluntary Arrangement
(CVA) process.
The harsh reality is that the High
Street continues to suffer, not least from
a shift to online retail sales that in the
UK is more marked than anywhere else
(other than China). Of course, landlords
do not relish reducing rents, but when
faced with the prospect of empty units,
a CVA can be an attractive solution to
help a retailer survive, even if landlords
take a hit. The recent challenge in the
Debenhams case illustrated that a rent
reduction to current market levels is
not unfair, and some would argue that
landlords should be engaging with
their tenants earlier to help secure their
viability. The flip side of that argument
is that landlords’ representatives, such
as the British Property Federation,
believe retailers and IPs should enter in
to meaningful dialogue with them before
pressing the CVA button, to address
landlords’ concerns.
Those who are critical of the retail CVA
point to repeated failures, where a CVA
one year leads to an administration the
next. Mothercare is not the first to go this
way, and some reports suggest as many
as 50 percent of the retailers entering a
CVA have subsequently ceased trading.
Challenges to CVAs are becoming more
common, but whether or not those
actions succeed in stemming the use of
that particular procedure, the difficult
trading conditions on the High Street
look set to continue, and if the demise
of the CVA leads to more administrations
or liquidations, then who wins? Not
creditors.
The harsh reality is
that the High Street
continues to suffer, not
least from a shift to
online retail sales that in
the UK is more marked
than anywhere else
(other than China).
CHANGES FOR 2020
The Pre-pack administration has been
used in some retail cases, such as House
of Fraser, where currently stores are still
open for business this Christmas. The
Government’s review of the regulatory
arrangements around pre-packs is
ongoing (albeit perhaps dormant while
the election is running its course), but we
may expect to see some proposals early
in the New Year, given that the statutory
provisions in the Small Business,
Enterprise & Employment Act 2015
expire in 2020. Pre-packs to connected
parties is the focus of attention, and the
low take-up of referrals to the Pre-Pack
Pool is a concern, though my informal
soundings among creditors suggests that
little attention is paid to the opinions
commissioned by prospective purchasers
– which begs the question as to why they
should go to the trouble and expense of
obtaining one!
Next year should also bring further
developments in the Government’s
review of the regulation of IPs, following
the recently closed call for evidence; a
consultation by the Insolvency Service
is expected. While there are now
considerably fewer regulators, as I noted
in my October Credit Management article,
there will likely be calls for some change
– even if that falls short of imposing a
new single regulator.
A number of Government-led
changes are on hold. One such example
is legislation on the proposed new
breathing space for individuals in
financial difficulty. Given the rise in
IVAs highlighted in the latest statistics,
it would be a shame if this is shelved.
However, as both main parties supported
the broad proposition at the last election,
we might see some movement on this,
whatever the colour of the new governing
group in Westminster. The Government
was expected to lay regulations before
Parliament before the end of this year,
but political uncertainty seems to
have put paid to that; nevertheless, as
implementation is not due until early
2021, this could still be on course.
NO CHANGE OR CHEER!
Unfortunately for unsecured creditors,
there is not much Christmas cheer in
the latest news from HM Treasury. CICM
and other bodies wrote collectively to
the Chancellor to raise concerns about
the intention to re-introduce preferential
status for HM Revenue & Customs from
next April. The plans affect all business
insolvencies commencing April onwards,
and will see the Revenue take the
first (sometimes large) bite out of the
insolvency cake in respect of any unpaid
VAT and PAYE/NIC. This takes us back to
the pre-Enterprise Act days, only this time
the preferential claims will be unlimited.
In a response from Treasury, they
reiterated their point that taxes ‘collected
and temporarily held by businesses
should be protected’, and that taxpayers
can reasonably expect that these will
‘go to fund public services as intended,
rather than being distributed to other
creditors in the event of insolvency’. So,
the Treasury is not for turning and we
should expect this to come in as planned,
regardless of the election we are all
looking forward to!
There’s a merry thought for Christmas!
Enjoy yours, notwithstanding the
insolvency gloom!
David Kerr FCICM is an insolvency
practitioner with extensive regulatory
experience and a member of the CICM
Technical Committee.
The Recognised Standard / www.cicm.com / December 2019 / PAGE 13