Landlords accuse Clarks of abusing insolvency processes

·3-min read
CARDIFF, UNITED KINGDOM - APRIL 06: A general view of the outside of a Clarks shoe store on April 06, 2020 in Cardiff, United Kingdom. The family-owned footwear retailer Clarks has drawn up plans for the permanent closure of some of its stores. There have been around 50,000 reported cases of the COVID-19 coronavirus in the United Kingdom and 5,000 deaths. The country is in its third week of lockdown measures aimed at slowing the spread of the virus. (Photo by Matthew Horwood/Getty Images)
If the vote is successful next month, LionRock will buy a majority stake in Clarks, with the Clark family to remain invested in the business. Photo: Matthew Horwood/Getty Images

One of the UK oldest shoe stores, Clarks has been accused of abusing insolvency processes by launching an unviable restructuring plan.

Landlords say that the 195-year-old shoe chain is not able to meet the conditions of the company voluntary arrangement (CVA) after the firm pays out dividends to family shareholders.

It comes after, Clarks launched a CVA last week that will see most of its 320 UK stores moving to rents based on turnover — where rent is calculated on the amount of cash that goes through the tills.

As part of the plan, around 60 shops will shift to zero rent and all arrears built up during COVID-19 will go unpaid.

The CVA means that landlords will be the only creditors whose debts, which total £160m ($211m) will be compromised.

Despite that, landlords account for less than 25% of the votes. A CVA needs at least 75% of votes to pass.

A CVA is a formal agreement between a business and its creditors which gives firms the chance of recovery.

It sets out how repayments of company debts should be made to creditors and can deliver a better outcome than an administration or liquidation. After 14 days creditors are asked to vote and at least 75% must agree.

“This abuse of CVAs forces property owners to absorb significant losses with little attempt to build a recovery strategy they can support as economic partners,” chief executive of the British Property Federation, Melanie Leech, told the Times.

READ MORE: Pizza Express completes refinancing deal and appoints new bosses

Last week, Hong Kong-based private equity giant LionRock Capital, pledged a £100m investment, conditional on the CVA being approved and passes without any legal challenges.

If the vote is successful next month, LionRock will buy a majority stake in Clarks, with the Clark family to remain invested in the business.

At the time, Philip de Klerk, interim finance chief at Clarks, said: “In order to address the permanent shift in structural shopping behaviour as a result of the Covid-19 pandemic, the CVA is being launched out of absolute necessity.

“The proposal to creditors outlines a combination of a reduction of rent and a move to rebase Clarks’ rental cost base through a turnover-based model that aligns to future performance and reflects the wider retail market.

“As part of the CVA, we will move 60 of our 320 stores to nil rent. It is important to stress that we are not announcing the closure of any stores today, and employees and suppliers will continue to be paid.”

Clarks is the latests in a long line of high street companies which have turned to insolvency specialists to avoid complete collapse.

Retailers including New Look, Jigsaw and Edinburgh Woollen Mill have all used insolvency processes to reduce debts as struggling stores buckled under the pandemic pressures and restrictions on high streets.

Restaurants and bars have also turned to CVAs. Pizza Express, Pizza Hut and Revolution Bars have all used the insolvency tool.

Watch: Why tax rises may be inevitable in Britain

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting