Mediation – The way forward for troubled retailers

You don’t need to be an avid reader of the Financial Times to notice what is happening in the retail sector in the UK.  Just a walk down the High Street to see the names we grew up with shows that retailers in the UK are struggling to adapt to globalisation and new technological challenges from ‘platform’ businesses like Amazon, E-bay and other online retailers and ‘box shifters’.  We are only half-way through 2018 and already we are seeing the failures of several household names including Poundworld, Henry Lloyd, Kleeneze, County Wide Farmers, Toys ‘R’ Us UK, Maplin, Joe Bloggs.  2017 was also a bad year seeing the demise of Greenwoods, Jaeger, Agent Provocateur.

The Company Voluntary Arrangement of the House of Fraser is just the most recent big name to fall victim to changing times.  Accompanying the big names are thousands of smaller corner shops, businesses, newsagents and other enterprises which seem to disappear often, and this was the problem, because we never knew nor did business there.

And yet whilst so many retailers are struggling in this manner through difficult times, others are finding their niche and remain popular and profitable.  The trick of course is to identify how to transform one’s business from a struggling example of the outmoded and outclassed to the thriving ‘boutique’ enterprise successfully catering to a loyal following; maybe  adopting a “purple cow” approach to find their niche.

While Directors are scratching their heads, cashflow and management accounts move on.  Who can blame the proprietors of such businesses for listening to the siren call and contacts supplied by their accountants suggesting they enter into Company Voluntary Arrangements and go into administration?  But is this the best course of action or may there possibly be others.  The advantages of a CVA or “Chapter 11” as our American cousins call it are that you can keep the creditors from the door for a while provided you keep up the payments.  However there are three distinct disadvantages, these are:-

  1. Company Voluntary Arrangements are run in strict compliance with statute and the administrators of the arrangement are under strict statutory duty to stay within the legal framework and not to take chances.
  2. For every honest merciful helpful administrator there is another who provides little service during the course of the administration and spends most of his or her time working out how much more they will make after they have personally petitioned for the company’s liquidation. All it will take is just a little manipulation of circumstances including obstruction of the process of intervention by the limited number of “white knights” might otherwise save the business..
  3. The CVA process is very public. Sometimes this is an advantage but often it will kill goodwill and trade.

So what is the alternative?  In the case of so many businesses of whatever size, there are usually only one, two or three main creditors whose portion of the overheads and cashflow management is critical.  Rather than paying a CVA Administrator on an ongoing basis why not engage a professionally trained and accredited commercial mediator. The mediator will  get these one, two or three major players around the table in private for as long as it takes to “cut a deal” that everyone can live with.  This usually only takes a day, sometimes a day or two but the process can be swift and the outcome remarkably beneficial.  In the course of a commercial mediation with say a major creditor or a landlord, the constraints which are imposed on an Administrator under the legal framework do not exist.  The range of possible outcomes is limited only by the imagination of the participants attending the mediation under the helpful guidance of a mediator who will have seen it all before and may have suggestions to offer which the participants have not themselves heard of.

At the end of the day it may mean a commercial landlord accepting less rent or partial surrender of the lease or assignment or underletting or offering a new lease on terms perhaps less lucrative than previously.  It may mean a creditor taking less money in the pound or being offered alternative security in order to keep their own business going.  At the end of mediation there may not be a group hug and the popping of champagne corks every time but, in 85% of cases, those who attend leave with a deal they can live with and life can go on.

So next time you hear that siren call to think about a CVA, think of commercial mediation as a cheaper and potentially more cost-effective and always more flexible. Mediation may be just what you need to give your business a better chance of  becoming the successful enterprise it once was and may yet be again.

Jeremy Dable

Commercial Barrister & Mediator