Insolvency In The Fashion Retail Sector: The Risks And The Opportunities

by DLA Piper
Contact

[co-author: Peter Manley]

In this article on the changing landscape of UK fashion retail, we consider the challenges and changes faced by the industry and comment on the opportunities available for existing players and potential new entrants to the market.

The UK fashion industry is estimated to contribute over £21 billion annually to the UK economy. Of this figure, an estimated £2.5 billion comprises retail spending. With over 800,000 people employed in the industry, fashion retail is a significant and vibrant part of UK Plc.

However, in recent years UK fashion retail has been peppered with tales of financial “failure” and in many cases “rescue”: retail has struggled to adapt first to the global recession and then to the new realities as the UK emerged from recession in 2009. It may be surprising to note that even in the current post-recession period, the UK market continues to see significant levels of financial distress and business failure. Established businesses across the fashion retail spectrum are being affected, with businesses operating in both the value segment (e.g. Peacocks and Internaçionale) and high-end segment (e.g. Nicole Farhi and Aquascutum) finding themselves vulnerable to financial distress.

The retail sector continues to face a number of significant challenges. Many retailers (whether in fashion, entertainment or hospitality) are having to manage the costs of rents across their premises portfolio while addressing profitability challenges on marginal stores. Pressure from online competition, employee costs, continuing development of quality ranges and the impact of seasonal weather on consumer demand have all contributed to the insolvency of a range of prominent fashion retail names.

In broad terms, “insolvent” means that the business is unable to pay its debts and liabilities as they fall due. Very often, the insolvency of a business in the UK will involve the appointment of an accountant by the company or its creditors to act as the administrator of the company which owns the business. Once an administrator is appointed, the company is in administration and this (in general) prevents any creditors from taking action against the company.

Insolvency is perceived by many to be the end of a business. But while the initial impact on customers, suppliers and employees of a business undergoing a corporate insolvency process can be difficult, there are significant opportunities for competitors and/or new entrants to the market to acquire strategic assets and business when a fashion retailer undergoes an administration or other insolvency/restructuring process. The insolvency of a business in this sector and the appointment of administrators does not necessarily mean loss of brand value. The insolvency regime in the UK aims to facilitate business recovery and provide an opportunity for financially distressed businesses to trade profitably in the future. A large proportion of those brands/businesses have emerged from administration under new ownership as leaner, more dynamic and more competitive businesses with a prospect of trading profitably for years into the future, typically with a smaller store portfolio, reduced employee costs and a strengthened management team to drive the business forward.

A successful acquisition in these circumstances requires a purchaser to move quickly, so early notice of an opportunity is key. The absence of any warranty or representations from the administrator on issues of title to the business/assets being sold will mean the purchaser will have to price risk into any offer.

When making an acquisition, consideration must also be given to the future structure of the business and to the ownership of the assets. Appropriately structuring a business can be crucially important in managing risk of insolvency within a corporate group operating under different brand names in different sectors and jurisdictions. The use of distinct legal entities to hold particular assets or businesses can isolate unprofitable elements of a group or business in the event of trading difficulties in a particular market or sector. This is a very valuable tool and can allow a purchaser to avoid the “bear traps” which affected the insolvent company. For example, holding trading operations, property assets and intellectual assets in separate legal entities may mitigate the risk to assets of the group in the event of trading difficulties in a particular area.

In the fashion retail sector where brand value is difficult and costly to establish, increasingly the insolvency of an established business in the market is seen as a strategic opportunity to acquire valuable intellectual property assets and skills without having to pay the premium that would apply to a solvent asset or share purchase. The “failure” of a business in this sector is increasingly viewed as an “opportunity.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper
Contact
more
less

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.