Insolvency continues to hit UK retail sector
Retail insolvency rates have surged by 7% year on year, although the number of company voluntary agreements has more than halved in five years, new data shows.
Data from RPC shows the number of retail insolvencies has increased from 999 in 2015‐2016 to 1071 in the last financial year.
Greater competition from online vendors has hit high street sales while operating costs have increased substantially, piling the pressure on to retailers.
A number of struggling businesses have also seen credit insurance withdrawn, reducing the options for those on the verge of insolvency.
March saw a 6% decrease in footfall, marking the biggest year on year decline since 2010, while the UK’s 20 main online sellers saw sales jump by 23%.
Despite the struggles of high street stores, the number of retail company voluntary arrangements (CVAs) has declined from 33 to 15 in the past five years.
A CVA aims to cut debts or to reschedule them by coming to a compromise with key creditors, avoiding the need for a full restructuring or for a formal insolvency.
Numerous major businesses have entered into CVAs, or are reportedly in the process of negotiating one, including Carpetright, Mothercare and New Look.
Retailers can also struggle to shift any excess office or floor space as a result of their lease agreements, which can place a further financial burden on them.
For those in difficulty it is important to assess the situation at hand and to seek appropriate advice on the best way forward.
Should financial issues persist, or a business not be structurally sound, then a CVA or alternative measure could simply be delaying liquidation.
Under a CVA, a company is able to freeze all of its unsecured debts while developing a repayment schedule and new terms.
This then enables debts to be repaid over time, as set out by the CVA and using profits from continued trading.
By Phil Smith