Our high streets have witnessed significant changes in recent years as a result of the collapse of well known names such as Jaeger, BHS, Woolworths, Victoria’s Secret, Laura Ashley and DW Sports.  More recently, the Arcadia Group (Topshop, Burton, Wallis, Miss Selfridge, Dorothy Perkins) and Debenhams have collapsed and I am often asked what a licensed insolvency practitioner  does when appointed Administrator and handed the keys of a chain of shops.

By way of general explanation, the essential difference between administration and liquidation is that the Administrator has formed the view that there will be better realisations overall compared with  a liquidation process of shops closing, employees made redundant and assets sold for a modest sum. On the basis that the Administrator is trying to extract maximum value for the benefit of creditors, an assessment must be unemotional, over-arching, and realistic.  After all, he is trying to save all/part of a business and create the prospect of a dividend to creditors.

Before accepting appointment as an Administrator, a substantial amount of work will  be undertaken in terms of considering/assessing issues such as :

1. Which outlets are owned and which are leased. For those which are owned, what is the level of secured borrowings and the attitude of the lender.  For those which are leased, are there rent arrears, what is the current rent and how willing is the landlord to deal with either the administrator or a new tenant.

2. What work is required to each building in terms of repairs, health and safety compliance etc. It is fairly typical to find that expenditure on fabric has been small (if anything) in recent years because of a gradual decline in profitability and positive cash flow. The Administrator will wish to know what security and insurance arrangements are in place : buildings, contents, staff and general public.

3. On a store by store basis, what is the staffing level. If trading is to continue, what staff will be required, what is the cost of redundancy (for each person) is there a Union presence, and are staff in the mood to participate in trying to save all or part of the business in order to preserve employment.

4. What are the intellectual property and GDPR issues, and what social media presence exists. As we see more often these days, the most valuable assets are frequently the business name, website and customer address list.

5. Are there potential buyers, which might include the existing board, who can act quickly when administration incepts. If not, trading may have to continue for a period of months in order to market the business to as wide a base as possible. If ongoing trading occurs, what systems are in place to monitor sales, control cash or deal with expenses etc.

6. If trading is to continue, is there sufficient cash flow to support the activity or will lenders be invited to contribute. What does the cash forecast look like and what is the attitude of suppliers in terms of stock on hand e.g. retention of title claims, and future supplies.

7. Are there activities that can be cut/reduced immediately e.g. buying group, marketing department, IT support, or the strategic development team. Is it sensible for an immediate closure of some stores, phased closure of others, with a few better performers retained in the hope of finding a buyer.

8. What are the arrangements for delivery/return of online orders to customers. Will unused gift vouchers and customer credits be honoured.

9. What is the credit card/PayPal process for dealing with sales, and is there a danger that monies that would normally be released from credit card purchases will be delayed considerably.

10. What ongoing legal issues are there in terms of suppliers, customers, employees, local Council, landlords etc.

These points only give a flavour of the tasks to be addressed and clearly, whilst the existing finance and reporting function of a multi-store entity may be retained, at least in part, the Administrator will install a system of reporting because it is his responsibility to ensure strict financial control at all times. The Administrator recognises that he will be held publicly responsible if the whole process goes sadly wrong and hence, it is important that all stakeholder groups understand/respect the challenges being addressed.

Thus, detailed planning is crucial before an administration incepts, supported by regular reviews and strategy discussions during the process. Further, an effective communication programme is a key aspect, particularly with intense media scrutiny, which keeps all stakeholder groups advised of developments.

This article can only give a flavour of the process but it can be seen that the administration of high street stores is a challenging task, but not insurmountable if a sensible and experienced approach is adopted.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.