What happened to retail last year?
The UK Insolvency Statistics provides data on company insolvency and individual insolvency procedures.
Broadly speaking, the 2017 insolvency statistics show a slight increase in the number of company insolvencies. In total, 17,243 business entered into insolvency procedures across the year. The business sectors with the largest increase included administration, construction, retail, hospitality and manufacturing.
The figures demonstrate an increase in creditors voluntary liquidation; this insolvency procedure accounted for 74.6% (12,861) of all insolvencies. While there may have been an increase in businesses entering CVLs, the number of companies entering other methods of insolvency has decreased overall.
Insolvency in the retail industry
Retail administration has, recently, hit the news due to a number of high profile closures. The Toys R Us administration is a sign of the times, highlighting some of the issues retail stores are facing, e.g. the ability to compete with online platforms.
Originally, Toys R Us had negotiated a company voluntary arrangement (CVA) – which we will discuss later in the article – but failed to continue with their payments, leading them to announce their closure. Similarly, Maplin has struggled in a changing climate, with the chief executive stating post-Brexit negotiations had an impact, and the company entering retail administration in early 2018.
You can read more about the retail giants and their subsequent insolvency procedures here.
The retail industry accounted for the third highest number of new company insolvencies in 2017. To put it in perspective, Q3 of 2017 – July to September – experienced a 0.5% increase of retail companies entering administration, totalling 2,144, compared to Q2. Alongside construction and administrative and support service, these three business sectors accounted for 50% of all company insolvencies.
Issues facing retail
There are a variety of issues that can affect the longevity of retail stores. For example, the retail industry has been struggling with the rise of digital and the ability to shop on your phone. Consumers can purchase products without leaving their house and with much more ease than travelling to the high street.
As a direct result, sales are down for many retail stores and staff working on retail shop floors fell by 2.4% at the beginning of 2017. Other issues facing retailers include:
- Pressure to adopt flexible opening hours for consumer demand, overstretching staff resources and finances
- Consumers choosing large retailers over independent shops, for convenience.
- Huge rental bills and business rate bills, particularly if you have stores both out-of-town and on the high street.
Adverse weather can also significantly affect retail sales, especially as consumers may choose large shopping centres with undercover parking facilities, or opt to shop from home.
Creditor negotiations
In many cases, it’s mutually beneficial to your creditors that your business recovers. With that in mind, your company creditors may be open to negotiations. For example, an informal arrangement (or non-insolvency arrangement) may be suitable, as it will cost considerably less to put in place.
They, generally, last no longer than 24 months and suit smaller business with fewer creditors. However, you must be aware that as it is not a formal insolvency procedure, the arrangement is not legally binding. For further information, you can read our guide here.
For HMRC debts, an alternative option to creditor negotiations could be a time to pay arrangement (TTP). A TTP is only an option for companies facing temporary cash flow problems, as you must convince HMRC that your business is viable and profitable in the long-term. It’s important to note that a time to pay arrangement is not a business recovery fix and only suitable if your company is solvent. You can read more about the process here.
Insolvency solutions
While formal insolvency procedures may not be something you have considered, they do offer aid for companies in financial trouble.
Depending on your company finances, pre-pack liquidation or administration could be an option for business recovery, if your firm can be identified as otherwise viable. Pre-pack creates a seamless transfer of assets and employees, and despite recent negative media attention, when used properly, can be a highly effective insolvency procedure.
Similarly, company voluntary arrangements have hit the headlines due to New Look recently entering the insolvency procedure, and closing more than 60 stores. A CVA allows you to keep control of your company. While you will still have to comply with the rules set out by the CVA, you will still be involved in the day-to-day running of the company.
Seek advice
If you have financial concerns regarding your business, the best thing you can do is seek advice urgently. A licensed insolvency practitioner can make you aware of the different types of funding and explain alternative procedures to aid business recovery. If you have any questions, you can speak to one of our BusinessRescueExperts immediately for free, friendly advice.