Retail restructuring - From pressure to opportunity, what directors need to know

Seek advice early so that all options can be considered.

Negotiations with lenders, landlords and other creditors may result in forbearance whilst changes are made. Some lenders are supportive, whilst others, particularly HMRC, are taking a firmer approach to enforcement. Early intervention may prevent the need for any formal processes.

The main options will be restructuring usually through a CVA, administration, a sale or obtaining further investment / alternative funding streams. Much will depend on the reason for the shortage of cash and the short and medium term viability. Very often it is necessary to run more than one of these options in parallel, until it becomes obvious which will succeed. This is a very stressful and intense period for directors. It is often an emotional one too and it is important to have good support around you. We recommend choosing your support wisely and consider taking references.

Restructuring plans have become an increasingly important tool for retailers, offering a flexible way to reshape balance sheets and store estates for long-term viability. Recent activity, including Poundland’s sanctioned plan and River Island’s use of the process to realign its physical estate, highlights how these plans can support lease restructuring, debt compromise and wider operational change. The broader trend is one of earlier and more strategic intervention. Restructuring plans are becoming a mainstream option for preserving value and creating a more sustainable platform for growth.

High-profile examples of administration include Radley, Quiz Clothing and Claire’s, where store closures and insolvency processes have been widely reported.

Recent hospitality sector examples include Franco Manca and Leon’s exit from administration through a CVA. In the right circumstances, CVAs remain a valuable tool where relative speed is required and lease restructuring is central to a sustainable future.

Early engagement significantly increases the range of options available. It also enhances the prospects of preserving enterprise value and achieving a better outcome for stakeholders as a whole.

Directors need their own independent advice given their directors’ duties. This can be procured on behalf of all the directors, or individuals can seek their own advice. We have seen many insolvency practitioners take action against directors personally for not having taken appropriate action early enough to safeguard company funds. With hindsight, it can be relatively easy to be potentially ‘trading whilst insolvent’ and therefore, it is important to document thought processes and advice taken to show that steps and actions were properly considered and reasonable at the time.

In addition, when insolvency is looming, making payments to creditors may be fraught with difficulty, as they may later be challenged by an insolvency practitioner if the business enters a formal insolvency process. By relying on expert advice, directors not only have a good shield to prevent such claims but also peace of mind and support, in what often is unchartered territory for them.

We have seen a noticeable increase in directors seeking early advice. In response to this growing need, Freeths has developed a dedicated online resource for directors facing financial pressure. For more see information, see Directors in Financial Distress.