In our insolvency and restructuring blog series, we’ve been exploring the various options available to businesses that may find themselves in financial distress, but fundamentally have a sound business that has the potential to succeed.

We’ve covered topics, such as Company Voluntary Arrangements (CVAs), pre-pack administrations, as well as what to consider in the early stages of restructuring.

When it comes to proactive ways to deal with a business that needs a helping hand, these are the most popular and, to a large degree, the most effective methods to keep a business above water. However, there are some less common tools that, in the right circumstances, could help companies to move forward. So, what are they?

Liquidation
Traditionally, liquidation is a terminal process. It’s generally intended to bring the life of a company to an end in an orderly fashion.

However, there are scenarios where liquidation can be used in a more proactive way. In certain circumstances, typically smaller businesses can use liquidation in a similar way to a pre-pack administration, where the assets of the business are essentially reacquired from the liquidator.

It’s also important to note that there are two basic forms of liquidation – insolvent and solvent. On the one hand, if you cannot afford to keep the business afloat and know it’s the end of the line, then it’s worth considering insolvent liquidation as a means to formally close down the business. On the other, if the company has been successful, but you’re in a situation where you want to wind it down (e.g. as part of a wider group restructure, or perhaps after an SPV has served its purpose), then a solvent liquidation may be the best route for you. In that scenario, the assets of the business are realised and distributed to the shareholders.

Moratorium process

The standalone moratorium was introduced via the Corporate Insolvency and Governance Act 2020. It can be used independently (in that it is not automatically followed by an insolvency process – moratoriums in English law have traditionally been attached to administration or a CVA, for example) and is designed, according to the Government, to create ‘formal breathing space in which to explore rescue and restructuring options, free from creditor action’.

Except in certain, limited circumstances, no insolvency proceedings can be instigated against the company during the moratorium period, which is 20 days. It also prevents most forms of legal action being taken against a company without permission from the court.

Insolvency statistics indicate that the moratorium has not been widely used. That might be down to a lack of understanding of the process – new law always takes time to settle of course – but, it’s important to note that, while 20 days may appear a short amount of time in order to resolve serious financial issues, the intention is really that a business uses that time to consider and finalise wider restructuring plans. In reality, the expectation would generally be that the moratorium would be followed by some other form of insolvency process. In that sense, there is no reason why the moratorium cannot be a useful tool in the right circumstances.

What are the options?

When a business finds itself in difficulty, the good news is that there are a number of options they can explore with the support of a professional adviser. Those options have been covered at greater length in this series and the links to our previous blogs are below:

General Restructuring;

CVAs; and

Pre-pack Administration.

It’s true to say, of course, that what works for one business may not necessarily work for another. Similarly, what is effective in one sector might not have the same impact in another. The key to insolvency and restructuring is to understand the current state of your own business and to be open minded about the various options available to you. No-one ever wants to seek insolvency advice, but sometimes it is impossible to avoid. Professional support is likely to be hugely valuable if you do find yourself in that position.

If you would like to discuss this blog, or any of the blogs in our insolvency and restructuring series, contact me on  (0)7920 237687 or email daniel.clarke@pannonecorporate.com

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Company Voluntary Arrangements (CVAs) have grown in prominence in recent years, as businesses have sought to implement them as a means to continue trading in the toughest of conditions – most notably on the high street.

Most recently, Wilko is understood to be considering a CVA in a shake-up of its business and upmarket retailer, Robert Goddard, is the latest business in a growing list to use a CVA as a restructuring tool. The independent mini chain, which operates across 10 locations and employs 100 people, had its CVA approved by creditors at the end of June – a move that protects both its staff and retail outlets.

Despite their popularity, CVAs remain the subject of debate and discussion. Consider, for example, the landmark High Court ruling last year when a large London landlord overturned a CVA decision relating to one of its contractors [link – https://www.insidehousing.co.uk/news/large-london-landlord-overturns-cva-in-landmark-high-court-ruling-81483].

The increased use of CVAs to manage obligations to landlords, in particular, is clearly divisive – driven by the continued fall-out from a global pandemic and the current economic landscape, both of which are accelerating the fortunes and misfortunes of many businesses, particularly those on the high street. However, there are companies that have suffered irreparable damage in the last three years. As such, CVAs are a viable option for those businesses finding themselves unable to recover from the relentless challenges that have rained down on them since the beginning of 2020.

Whatever your view on the current framework, it’s hard to deny that CVAs have played, and continue to play, a vital role in enabling businesses to continue to operate.

So, how do CVAs work?

A company voluntary arrangement (CVA) is, in simple terms, a legally protected agreement between a company and its creditors to restructure its debt. There are very few rules about what terms a CVA can and cannot contain – the driving factor tends to be what the creditors of the company will realistically approve. Typically though, a CVA will entail an insolvent company repaying all or a proportion of its debts over an agreed period of time. Usually, this is between three to five years. Provided that the company complies with the terms of the CVA, it will effectively be free of the pre-CVA debt at the conclusion of the arrangement.

What are the benefits?

The biggest benefit of a CVA, provided that it is approved by the creditors of the company in question, is that it enables the insolvent business to continue trading more or less normally. A CVA also allows business owners to:

Seemingly secure companies have found themselves in a fragile position in recent years – a prospect that may have seemed unfathomable as trading drew to a close at the end of 2019. Given the current state of affairs, with inflation causing the cost of doing business to swell, the price of funding becoming prohibitive to many, not to mention the debt pile gaining significant fat thanks to 13 consecutive interest rate rises, it’s becoming particularly difficult for cash-poor businesses with little working capital and growing liabilities to operate.

With so many unknowns and factors outside of the control of businesses, the key is to be prepared, flexible and open to opportunities for restructuring and re-organisation. It’s important for businesses to take a proactive approach, to keep their financial position under ongoing review and consider all of the possibilities potentially available in a timely manner. Waiting in hope may only minimise the options available and force businesses into increasingly difficult choices. A CVA may well be one answer to the issues a business faces.

If you’d like to discuss the blog in more detail, contact me on  (0) 7920 237687 or email daniel.clarke@pannonecorporate.com

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In the last three years, companies of all shapes and sizes have had to contend with a plethora of challenges that have severely tested the balance sheet and put a strain on even the best run businesses. Brexit, a global pandemic, geo-political tensions, a cost-of-living crisis, record inflation, rising interest rates, and crippling energy prices, have all been layered on top of each other to create a bruising trading environment for many.

The simple fact is, demand in certain sectors has fallen and is slowly recovering, the cost of business has shot up, and the job of getting things done has become more time consuming and onerous. It’s little wonder that a significant proportion of SMEs have accumulated considerable liabilities during this period and have reached the point where a different course of action is needed, in order to secure the long-term future of their business.

Step in, pre-pack administrations. Loved by some, loathed by others (namely creditors), pre-pack administrations haven’t always had the best reputation, because the sale of the business and assets is often completed before the creditors of the insolvent company are even aware of the administration.

Post-COVID, many predicted a resurgence in ‘pre-packs’, which has yet to materialise, but with much of the Government support brought on by the pandemic now at an end, the restructuring tool remains a viable and useful mechanism for securing the future of those businesses that are fundamentally sound, but have been weighed down by debt and outstanding liabilities.

So what are ‘pre-packs’ and how can they help businesses looking to restructure? 

What is a pre-pack?

The term ‘pre-pack’ is used to describe the process whereby the business and assets of a company are sold, via administration, in an arrangement that is typically negotiated in advance of the company concerned formally entering into an insolvency process. The buying party is often (but not always) connected to the company (e.g. a new company formed by the existing directors of the company in administration).

Essentially, the process allows a valid business to survive whilst relieving it of creditor pressure but also ensuring that its assets are realised for proper value. It’s the latter aspect of that equation that has been an area of concern for some and which reforms brought in two years ago were focused upon – tightening up regulatory intervention and introducing more accountability.

When is a pre-pack appropriate?

‘Pre-packs’ can be a really effective tool for all concerned when they’re used in the right way. Typically, they’re used where a company has a good underlying business but is struggling to meet its ongoing liabilities – it’s not uncommon for there to be an imminent threat of, for example, a winding up petition, or a cessation of supplies/services which would damage the business.

Administered properly, pre-pack administrations create a virtually seamless transfer of business and assets from the insolvent company to the purchaser. This can have significant benefits for the majority of stakeholders involved, because it allows for a high level of continuity. The business can continue trading under the same name (subject to compliance with section 216 of the Insolvency Act and its associated provisions), often from the same premises, and with the same staff. This means that the underlying business retains value, which is ultimately good news for all involved (especially when compared to the potential outcome, for example, in a liquidation). For those reasons, where they are viable, ‘pre-packs’ have always appealed to struggling businesses.

During the COVID-19 pandemic, the Government put in place a significant number of measures to support businesses, including those in the Corporate Insolvency and Governance Act, aimed at protecting businesses during the pandemic, providing much-needed respite for struggling companies. Those protections and safeguarding measures have now largely gone, leaving many businesses still exposed to the economic headwinds, which is where pre-pack administrations can play a part.

Key considerations

There are a number of important questions to ask and considerations to be made when exploring the option of pre-pack administrations.

Pre-pack administrations have a valid part to play in securing the long-term future of businesses, but there is a lot to consider before going down the route of a ‘pre-pack’. Now is the time to go through your options, taking into account the future economic outlook. With interest rates and energy bills still creating significant ongoing liabilities for companies, which will not necessarily be taken away by a pre-pack administration, it may pay to wait for the waters to calm before embarking on your ‘pre-pack’ journey.

If you’d like to discuss the blog in more detail, contact me on  (0) 7920 237687 or email daniel.clarke@pannonecorporate.com

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Those at the helm of a business should always be looking ahead and taking proactive measures to help future-proof the success of their organisations. 

As a leader, if you’ve carried out financial forecasting exercises and have concerns over the commercial viability of the business in the coming months or years, then now is likely to be an ideal time to consider undertaking an exercise to restructure or reorganise the business.

Restructuring does not have to be a significant exercise and it does not have to involve formal insolvency. Often there are relatively simple steps that can be taken to  support the goal of becoming more profitable and building longevity – but where do you start? Here, I share the five key areas to consider in the early stages of restructuring.

Identifying that things aren’t going to plan is one thing, but truly understanding the root cause of the issue is another – and until you know exactly what’s causing pressure, you can’t make an informed plan.

Is it a particular area of the business that’s underperforming, a major contract that isn’t profitable, or lease liability at a site that isn’t commercially viable? Perhaps a particular creditor is causing issues, or you’re stuck in the throes of litigation?

Asking questions like this should be the first stage in developing a restructuring strategy – it will not only identify current issues that need addressing now, but potential future headaches that could be avoided.

The next stage in the process is to audit your existing banking and financial arrangements and explore whether they can be altered to afford the business some financial breathing space. 

There are several options to consider, such as whether terms can be extended or renegotiated, or if a factoring or invoice discounting facility could assist with cashflow. Alongside banking arrangements, you should also review supplier contracts – can prices or payment terms be renegotiated to avoid operations grinding to a halt?

Although you may not want to make long term changes here, even temporary alterations in arrangements could help you navigate current business distress until you’re in a more stable position. 

When a business is struggling with debt and cash flow is lacking, an option to consider before exploring external financing is looking to negotiate with your existing creditors. You can ask to lower your monthly payment amounts, extend payment terms, or seek to set up a longer term payment plan.

You’ll need to demonstrate that you’re able to keep up with the proposed new terms and be prepared for creditors to deny your request but, as they say, if you don’t ask, you don’t get!

As much as every business owner wants to avoid making staff cuts, it’s worth considering whether a redundancy process or reduction in staff numbers could assist – or whether hours or contracts could be reduced to save costs. 

The unfortunate reality is that, in some cases, reducing internal resource is unavoidable. However, if you’re considering making redundancies as part of restructuring plans, you must follow the usual process. Take professional advice to avoid unfair dismissal claims which could lead to even more stress and expense. 

Simplifying the corporate structure of a group can also support in a business restructure. You should review whether contracts and liabilities are distributed effeiciently between parent companies or subsidiaries.

A reorganisation will often involve the transfer of assets, which may be shares in another group company or the business of another group company from one to another.

You could manage risk or exposure by moving liabilities around the group, or creating specific subsidiaries.

Restructuring can feel overwhelming but once you’ve identified issues, solutions may well present themselves. The best way to approach each stage should be discussed with a lawyer, but if solutions are not obvious or straightforward, you may need to consider a more formal process. 

Over the next blogs within this series, we’ll take a deep dive into the following options:

If you need restructuring advice now, don’t hesitate to contact one of our experts. We’d be happy to help. Contact restructuring and insolvency partner, Daniel Clarke on  (0) 7920 237687 or email daniel.clarke@pannonecorporate-com.stackstaging.com



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Financial trouble can hit any business and, in a post-pandemic world, it’s even clearer how fragile things can be. However, if issues arise, it may be necessary to seek alternative means of securing your future.

If you hit stormy seas, what options are available to help your business?

One of the most effective and common methods of securing an organisation’s position in the market – and to which financial hardship is not necessarily a pre-requisite – is a business restructure.

Restructuring is a catch all term that involves changing the financial, operational, legal, or other structures of a business to improve efficiency, profitability and cash flow. There are no hard and fast rules as to what a restructure will look like but it tends to involve refinancing, streamlining and/or corporate simplification, sometimes combined with a formal insolvency process, sometimes not, typically with the overarching aim of dealing with debt. However, companies may also restructure if they’re preparing for a sale, buyout, merger, or transfer of ownership.

There are significant benefits to undertaking a restructuring exercise and business owners should try not to be anxious about the process – it’s an opportunity to reflect on its current position and take the necessary steps to shape the future you want.

However, it’s important to bear in mind that restructuring is by no means a one size fits all process –what may work for one company, could be totally unsuitable for another. In order to be effective, the process requires the expertise and support of specialists who can work closely with the management team and other key stakeholders to devise and deliver an appropriate plan.

Here at Pannone Corporate, we’re experts in providing pragmatic advice to businesses of all sizes across a wide range of business sectors. Our Corporate Recovery team can help identify and implement the best solution in so far as restructuring is concerned – all done in a way that is tailored to your current needs, with a focus on you future strategic objectives.

Over the coming weeks, we’ll be developing a series of blogs to give business owners all the information they needs about the options available to them when it comes to restructuring. You’ll hear from a range of specialists as we cover:

If you need restructuring advice now, don’t hesitate to contact one of our experts. We’d be happy to help. Contact restructuring and insolvency partner, Daniel Clarke on  (0) 7920 237687 or email daniel.clarke@pannonecorporate-com.stackstaging.com

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Georgina Bligh-Smith is a paralegal in our insolvency and restructuring team. But, outside of work, she’s an avid hiker, spending much of her free time climbing some of the UK’s best-known mountains, racking up the miles and reaching new heights, in terms of elevation!

You can follow her climbing exploits on her Instagram page, @hikewithg_, where in the last 10 days she has posted about her greatest challenge yet – Tour du Mont Blanc. Along with her cousin, Danielle, Georgina has taken on the 170km trek, including 10,000m cumulative ascent and descent, with only one backpack and staying in mountain huts along the way.

In preparation for her epic adventure, Georgina has packed in several training hikes, including the Coledale 10 Peak Challenge in the Lake District (10 mountains, 13 miles, and 1700m elevation); Snowdon via Moel Elilio (14 miles, 1600m+ elevation); as well as a 20-mile trek in the Peak District. But nothing compares to the triumph of completing the Tour du Mont Blanc – all in aid of The Ella Dawson Foundation set up in memory of the 24-year-old who sadly passed away from a rare and aggressive form of blood cancer in July 2021.

Georgina’s 10-day journey began on 21 August at Les Houches, before arriving at the first refuge point in Auberge le Truc via Col du Tricot, with further stops in de la Balme; des Mottets (which included a well-deserved dip in fresh glacier water after tackling Tete des Nord Fours (2756m high); a celebratory Aperol Spritz at Maision Viellle, after crossing the border between France and Italy on day four; a big hike across Grand Col Ferret on day six, taking the duo out of Italy and into Switzerland; before finishing back at Les Houches after 15+ miles on 30 August.

After completing the Tour du Mont Blanc challenge, Georgina said: “This was a trip of a lifetime, not just because of the unbelievable mountain scenery throughout, but because we had the chance to connect with likeminded people from across the world on the same journey as us. Hiking six to eight hours a day for 10 days straight was tough, but the views were worth it!

“My cousin is close friends with Ella’s family, so it feels particularly special to us to have been able to raise awareness of the Foundation in the process.”

Paul Jonson, senior partner at Pannone Corporate, added: “Huge congratulations to Georgina on completing this epic adventure! We knew Georgina had a love of hiking, but to take on such a long distance hike in the Alps is extremely impressive. It’s a fantastic achievement for a wonderful cause and Georgina should be incredibly proud of her feat.”

If you would like to donate to the Ella Dawson Foundation and support Georgina’s charity challenge, visit https://www.gofundme.com/f/ella-dawson-foundaton

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Pannone Corporate has advised on the sale of Bury FC’s stadium, paving the way for the return of football to Gigg Lane.

Richard Wolff (insolvency & restructuring partner), James Wynne (real estate partner) and Oliver Moore (insolvency & restructuring), advised Inquesta Corporate Recovery & Insolvency – the administrator of The Bury Football Club Company Ltd.

The ground, along with other assets including club memorabilia, goodwill and intellectual property, and the Bury FC name, have been acquired by newly-formed Gigg Lane Stadium Limited – a company limited by guarantee whose members are the Gigg Lane Propco Limited and Bury Football Club Supporters Society Limited.

Richard Wolff said: “Today’s announcement is not only a positive result for the parties involved, but also for football, Bury and its local community. As a firm, we’ve been able to bring together our expertise across restructuring and real estate to support the process over the past few months and achieve the best possible outcome for stakeholders.”

Inquesta announced in May 2021 that the 12,000-capacity stadium was being put up for sale. Gigg Lane is one of the world’s oldest professional football stadiums and has been home to Bury FC since the club was founded in 1885.

Steven Wiseglass, a director at Inquesta, said: “We are delighted that this transaction has been successfully completed. It is a fantastic outcome for the fans, the club and the whole town, as it will hopefully bring football back to Gigg Lane. My hope all along has always been that Bury FC could be rescued.”

The Bury Football Club Company Ltd remains in administration and Inquesta is continuing with investigations into the company.

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Georgina Bligh-Smith joined the insolvency and restructuring team at Pannone Corporate in April 2021, after completing her Legal Practice Course.

Despite joining at a time when many people were still working from home, Georgina says she was made to feel “right at home” very quickly by a team full of legal professionals who have been at the firm for many years.

Nearly one year on, Georgina talks to us about ‘My Life in Law’, her own career ambitions, and her aim to help improve social mobility in a sector where more work still needs to be done.

Tell us a little bit about what you did before joining Pannone Corporate in April 2021?

Before joining the insolvency and restructuring team last year, I worked as a cost litigation assistant, which is a very niche area of law that many graduates don’t even realise exists! It really goes to show how varied the legal profession is and the range of opportunities out there.

While studying at university I also worked as a Topshop sales assistant for three years – I like to think that every experience has made me into who I am today!

As a paralegal in the insolvency and restructuring team, what does your role consist of?

I assist on a wide range of matters relating to both corporate and personal insolvency and restructuring scenarios. This includes administrations, liquidations and bankruptcies – in each case predominantly acting for insolvency practitioners.

What attracted you to the role at Pannone Corporate?

I was first drawn to Pannone Corporate because of its impressive array of clients and the firm’s specialist approach and focus on commercial law, providing business legal services. This really aligned with my interests and meant that my training would be completely tailored to an area I wanted to progress in.

Most importantly, I was looking to join a firm that had a collaborative culture that would nurture me into a great solicitor – something just felt right at the interview and I knew I’d found the place!

What route did you go down, in terms of training and qualifications?

I very much went down the traditional route: I studied law at the University of Manchester, before undertaking the Legal Practice Course at BPP Law School. I start my training contract with Pannone Corporate next year – something which I am really looking forward to. Once completed, I will finally be a qualified solicitor.

Increasingly, there are more and more avenues for people to choose from when it comes to entering the legal profession.  Why did you choose the traditional route?

If I’m honest, at the time it seemed as though this was the only route to a professional career in law. The sector has become so much more diverse in recent years, in that respect.

If I was starting that journey today I would give some serious thought to undertaking a legal apprenticeship. However, despite the hefty price tag, I really don’t know if I would give up that university experience!

Tell us what does a typical day looks like?

It might sound a bit clichéd, but no two days are ever really the same and this is what I love about the job.

I get to assist different team members with caseloads, covering contentious and non-contentious matters for a range of clients which involve both personal and corporate insolvency scenarios.

Typical tasks include conducting investigations into the conduct of directors of insolvent companies relating to antecedent transactions and misfeasance claims or dealing with possession and sale proceedings in bankruptcy matters and generally assisting with hearing preparations.

One thing that is consistent though is a good cup (or two) of coffee!

What is the most satisfying aspect of your job?

Aside from the variety, I would probably say the intellectual challenge. I joined Pannone Corporate right in the middle of the pandemic – something that has had a profound effect on the insolvency sector, in particular.

Not only have companies come under extreme pressure and struggled over the last two years, but insolvency law has continued to evolve in response to the pandemic.

No more so than with the introduction of the Corporate Insolvency and Governance Act 2020, which has introduced both permanent and temporary measures which we have also seen various extensions to.

As such, it’s been really important to keep abreast of all those changes, adapt and continue to find innovative solutions to the issues faced by clients in the current unusual circumstances.

What are you career ambitions?

Apart from the obvious one of qualifying as a solicitor and successfully making my way through the ranks, I really hope to be able to make a difference in improving social mobility within the legal profession.

As someone who was state school educated and the first generation in my family to go to university, I, like many others, have found navigating the legal profession particularly difficult at times.

I want to help level the playing field for younger people from disadvantaged backgrounds, whether that’s by mentoring students or supporting charities/groups that have this kind of aim in mind – for example, The 93% Foundation.

Whilst work is being done to raise awareness and increase diversity within the profession, in my view more must be done.

If you were managing partner for the day, what’s the first thing you would do?

I would go out and invest in employee fitness in some way shape or form, because participating in regular exercise has had such a positive impact on my own lifestyle and mental health.

Perhaps by partnering with a local gym, to arrange weekly group classes that are private to employees of the firm, with maybe with some light-hearted competition thrown in between different teams/departments!

This would help maintain a healthy, happy and productive workforce, whilst increasing camaraderie between employees at the same time (sounds like a great return on my investment!).

What would you be doing if you didn’t have a career in law?

I almost picked psychology for a degree, so it would probably be something in this field.

Why people do things in the way they do, why they feel and react in a certain way, as well as exploring different personality types, really fascinates me.

In fact, there’s a link with both psychology and the law – psychology seeks to understand and explain human behaviour and the law seeks to regulate it.

Understanding how emotions can complicate decisions taken by clients/opponents or having the ability to anticipate your opponent’s reaction, while being able to use effective tools of persuasion, can be really helpful in law too.

What can lawyers / the legal profession do to better support clients and does anything need to change?

I’d say improving client responsiveness remains an important aim, as this is something clients really value and, whilst it sounds simple, it’s also easy to get wrong and fall short sometimes.

By responsiveness, I don’t mean dealing with everything there and then, but making sure you acknowledge it and manage your clients’ expectations appropriately. This involves being more than just reactive but also proactive, such as updating the client before having to be asked. This is something we are very conscious of as a team and as a firm.

What do you enjoy outside of work?

I love hiking, particularly with a good scramble included to make it that bit more adventurous! The highlight of last year was scrambling along a knife-edged ridge called Crib Goch in Snowdonia.

I love escaping from busy city life into the hills with a packed lunch in my rucksack – there is literally nothing better.

This summer I am completing Tour du Mont Blanc – an 11-day hike through Switzerland, France and Italy, covering 170km. The combined elevation of this route (over 10,000m) is higher than Mount Everest is tall.

I always document and post route information/inspiration on my hiking Instagram page @hikewithg_

 

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Pannone Corporate has strengthened its insolvency and restructuring team with the appointment of Richard Wolff as partner.

Richard, who joins from JMW where he established the firm’s insolvency practice over a decade ago, brings nearly 25 years’ experience to the role. He will assist in team growth and development, as well as the expansion of the practice’s client base and professional network.

Specialising in both non-contentious and contentious insolvency and restructuring work, Richard has acted for a wide variety of clients – from insolvency practitioners and lenders, to corporates and private individuals.

Paul Jonson, senior partner at Pannone, said: “We’re delighted to welcome someone of Richard’s calibre to the firm, as we look to expand our expertise and reach within the insolvency and restructuring market.

“The insolvency landscape has changed markedly over the last 12 months and, as a firm, we are keen to capitalise on those developments by strengthening our team.”

Richard’s arrival follows the appointment of Georgina Bligh-Smith, as a paralegal in the insolvency and restructuring team. She will work alongside Richard, together with associate partner, Daniel Clarke, and senior associate, Heather Morris.

Richard commented: “Pannone has an excellent reputation for its ethos and outlook and has exciting ambition and aspirations for insolvency and restructuring as a core practice area within the firm – something that really drew me to the role.

“Over the next 12 months, there will undoubtedly be a period of sustained development and growth for this area of practice within the firm, as the pace within the insolvency and restructuring marketplace shifts up a gear off the back of the coronavirus pandemic and the withdrawal of the government and legislative-backed support measures for the UK economy.”

 

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The reputation of so called ‘pre-pack’ administrations has not always been positive but, in the right circumstances, they’re an effective way of ensuring the future of an otherwise insolvent business. The mechanism allows a potentially valid company to survive, but relieves it of otherwise debilitating debt.

In the midst of a global pandemic, when otherwise viable businesses are finding themselves in unfamiliar financial territory (in many cases, for no reason other than the impact of the pandemic), the option of restructuring in this way is, unsurprisingly, likely to be attractive. For creditors though, the prospect may not be as appealing.

In recent years, the number of pre-packs has generally been falling – be it because of a negative reputation, a changing regulatory and legal landscape, or the appeal of alternative routes. But, as Government restrictions relating to Covid begin to be lifted – whether that be the furlough scheme, or the kind designed to provide businesses with breathing space to continue operating throughout the pandemic – the prospect of a rise in pre-pack administrations is definitely on the horizon.

It’s perhaps no coincidence that the process has come under Government scrutiny at a time when a pre-pack may be regarded as a ‘quick and easy’ solution for struggling companies. Reforms, which will come into force at the end of April, following lengthy consultation by the Government, are designed to rehabilitate the process. The changes (which introduce an independent evaluator) are likely to make pre-packs less straightforward and potentially more expensive to complete.

The reforms are broadly well intentioned – designed to increase trust in the process and reduce the perceived abuse of the mechanism in the past – they may well prove to be an effective way of shaking off the generally negative perception of pre-packs in some quarters. In the right circumstances, and conducted appropriately, pre-packs have always served as a useful tool. It is to be hoped that these reforms will complement the process rather than hinder it.

Whilst it appears unlikely that the floodgates are about to open, with businesses rushing to complete pre-packs before the changes come into effect, there is a window of opportunity for those considering restructuring and it may be prudent to review potential options in that respect prior to the changes coming into effect.

That said, pre-pack administrations will, of course, continue to be a viable option post 30 April. No doubt the industry will adapt to the reforms and we will continue to see the use of the process in appropriate circumstances.

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A Company Voluntary Arrangement (CVA): a term not necessarily high on the agenda for many businesses, but one that has risen in prominence over the last two years or so, and particularly since March 2020. Most notably on the high street, where retailers have sought to use the arrangement as a means to continue trading in the toughest of conditions.

Increasingly a point of debate and discussion, CVAs were once again thrown into the spotlight earlier this month, when the British Property Federation (BPF) urged the government to overhaul UK insolvency rules.

In a letter to corporate responsibility minister Lord Callanan, the industry group representing landlords questioned the manner in which CVAs have been used more recently. It argued that commercial landlords were being disproportionately impacted by arrangements that can be voted through by other less-affected creditors.

The increased use of CVAs to manage obligations to landlords, in particular, is clearly divisive – driven by a global pandemic that is accelerating the fortunes and misfortunes of many businesses, particularly those on the high street. There are companies that have suffered irreparable damage due to COVID-19; those that have weathered the storm, but have been left with a balance sheet in need of repair; and those that have benefited and seen revenues grow through diversification, or simply by being in the right place at the right time. CVAs have increasingly become an option for those businesses finding themselves in the former two categories.

Whatever your view on the current framework, it’s hard to deny that CVAs have played, and continue to play, a vital role in enabling businesses to continue to operate. Without such arrangements, more retailers would have disappeared from the high street in 2020, with repeated national lockdowns adding even more pressure to cash-stretched and under-capitalised businesses.

COVID-19 has blighted seemingly secure companies and placed them in a position of fragility – a prospect that seemed unfathomable for many 18 months ago. The ongoing restrictions imposed by the government will only make it harder for businesses to gain the kind of financial footing they need in which to attract suitable funding and ultimately recover – whether that’s from lenders or stakeholders. What’s more, there are several issues sitting on the horizon that will only make that recovery more difficult. The furlough scheme has, of course, been extended, but it cannot continue indefinitely.

There are countless deadlines that have been kicked into the long grass – quite rightly, some would say, to provide much-needed respite for struggling companies. These include deferred VAT and PAYE and, more informally in many instances, supplier costs, rental payments and obligations to lenders. Added to that is the ban on commercial landlords evicting tenants. The eviction moratorium has been extended once again until the end of March, together with restrictions on the use of statutory demands and presentation of winding up petitions. Given the current state of affairs, there’s nothing to say that these deadlines won’t be extended further. However, when all of these issues do finally crystallise, it could be particularly difficult for cash-poor businesses with little working capital and growing liabilities.

It’s clear that banks and lenders will be keeping a watchful eye on businesses over the course of 2021, reviewing their financial position and deciding whether further support is justified. The reintroduction of the preferential status enjoyed by HM Revenue and Customs in insolvency is a change that may well force lenders to reassess their position as to financial risk. Under the changes, which came into force at the beginning of December 2020, ‘crown preference’ places the UK tax authority ahead of banks, lenders and other holders of floating charges. This is in respect of certain tax liabilities when it comes to the priority of payments in insolvency proceedings. This potentially significantly weakens the position of lenders in insolvency scenarios.

With so many unknowns and factors outside of the control of businesses, the key is to be prepared, flexible and open to opportunities for restructuring and re-organisation. It’s important for businesses to take a proactive approach, to keep their financial position under ongoing review and consider all of the possibilities potentially available in a timely manner. Waiting in hope will only minimise the options available and force businesses into increasingly difficult choices.

If you would like to discuss business restructuring and re-organisation further, please speak to our insolvency team.

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The British high street has seen a number of significant casualties over the course of 2020, as the sector has faced unprecedented challenges – a word too often overused during the pandemic, but one that is fitting given the strain businesses have been put under.

National and localised lockdowns have forced non-essential retailers to close their doors for significant periods, while reopening has triggered restrictions on capacity and extensive store remodelling to manage footfall in a safe and controlled way.

One of the many high-profile retailers to suffer at the hands of COVID-19 is Edinburgh Woollen Mill – which, together with Ponden Home, called in administrators earlier this month [November], as it closed 56 stores with job losses reaching more than 900. It’s difficult in the current economic climate to point to anything other than the global pandemic as the cause of EWM’s demise, but it does appear that the trading conditions caused by the coronavirus, and the subsequent lockdowns, have primarily led to Edinburgh Woollen Mill’s administration. Comments from the administrators suggest that the brand was trading well pre-pandemic, but the strain of the last six to seven months seems to have created irreparable issues.

The perception is that Edinburgh Woollen Mill’s primary target demographic has either been reluctant or unable – particularly in the case of stores based in tourist-dependent locations – to return to stores because of the pandemic and the restrictions imposed as a result of it. In that respect, the pandemic has clearly been a very significant factor in the situation reaching this point.

Other brands in the EWM Group have also fallen victim to COVID-19, with Jaeger and Peacocks also going into administration only last week [19 November], placing 4,700 jobs at risk. The loss of three brands under one group may be seen as somewhat surprising. At this time of the year, I would expect to see retail businesses attempt to ‘hang on’ in the hope that Christmas trading might improve their position. Clearly, EWM, Jaeger and Peacocks did not feel that was viable here – most likely because of the continuing uncertainty around what impact the restrictions will have moving into December.

Planning and anticipating the future is almost nigh-on impossible in 2020. But, when asked recently by Retail Gazette, ‘does Edinburgh Woollen Mill have a future in the UK?’, my immediate response was, ‘I certainly hope so’. The administrators are trading a significant proportion of the business and continue to look for a buyer. By closing 56 stores, which it’s assumed were underperforming, the business should now be a more attractive proposition for a potential buyer.

The fact of the matter is there’s clearly value in the brand. It’s well-known, with strong customer recognition and trust, which is extremely valuable in the retail sector. There’s an opportunity here for any potential buyer to restructure and streamline the business with a view to trading the brand successfully moving forward.

And that is the key for many retailers that are struggling during irrepressible trading conditions. Businesses and their directors should be alive to the possibility of taking action to restructure or streamline their position before formal insolvency becomes inevitable. There are a number of ways to achieve that – administration isn’t the only option. We’ve seen a significant number of CVAs in the retail sector over the last six to 12 months and there will undoubtedly be more looking at this option. CVAs are often attractive because they allow businesses to minimise the issues that loss-making stores are causing them, while focusing on the sites that are more profitable. Restructuring outside of a CVA/formal process is also a viable option and I’m sure businesses will be reviewing all of their options in that respect.

The decision to go into insolvency will not have been taken lightly by EWM. Whilst the administrators have indicated that the pre-pandemic trading performance was good, it’s probably fair to say that this was a business facing familiar problems caused by the general decline of the high street. Those issues will have been significantly exacerbated when COVID-19 struck. The immediate closure by the administrators suggests that those sites were either trading at a loss, breaking even, or operating at only a small profit. It would then have taken only a few weeks’ reduced income for those stores to become something of a millstone for the rest of the business.

The challenges that Edinburgh Woollen Mill is facing are the same for the majority of the retail sector –  a significant reduction in income and uncertain trading conditions moving forward. Unfortunately, as a result, I would expect to see an increase in retail insolvencies in due course. However, I don’t think we will see that immediately. A lot of retailers, if they’re able to do so, will try and continue operating over Christmas in the hope that will bring increased income. The extension of the furlough scheme until March 2021 will also be crucial for many retailers – it has clearly enabled many businesses to weather the storm so far.

At some point, however, businesses will have to reckon with the end of government support and an increase in creditor pressure. The reduction in income suffered over the course of this pandemic will not make that easy. Nothing is inevitable, and the hope would be that businesses can find restructuring solutions which will prevent them from going out of business entirely, but an increase in insolvency numbers over the next 6 to 12 months does look likely at this point.

Daniel Clarke is Associate Partner, Corporate Services, at Pannone Corporate

 

 

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