Controversial billionaire Philip Green is reportedly considering a company voluntary arrangement (CVA) for his Arcadia retail empire.
The CVA, which is a type of insolvency mechanism, could see the retail tycoon close a “significant numbers” of his stores, which include Top Shop and Dorothy Perkins, if creditors back the plans.
That in turn, would likely lead to “substantial job losses”, said Sky News’ City editor, Mark Kleinman, who added that the restructuring plans could be unveiled “within a matter of weeks”.
READ: CVAs explained
Like many UK retailers, Arcadia has been hit by rising costs and falling sales amid a weak consumer backdrop.
Most of Green’s brands have a big high street presence, which has exacerbated problems as those who are still spending money are increasingly doing so online.
Formal discussions with landlords to close stores and slash rents are expected to begin shortly.
EXCLUSIVE: Sir Philip Green's retail empire, which includes Top Shop and Dorothy Perkins, is drawing up plans to launch a Company Voluntary Arrangement within weeks that would - if approved by creditors - trigger store closures, rent cuts and job losses. https://t.co/ZJIxeCMIXA
— Mark Kleinman (@MarkKleinmanSky) March 15, 2019
Those landlords, such as British Land Company PLC (LON:BLND), will have to give their backing for Arcadia to carry out its restructuring, as would the Pension Protection Fund (PFF).
The company pays an estimated £50mln into the pension scheme every year.
Green and his team are understood to be in discussions with the UK’s pensions regulator, given his protracted dispute over BHS’s retirement scheme deficit following its collapse in 2016.
Sky sources said the regulator would only endorse a CVA if it was satisfied that the ability of the revamped Arcadia to meet its pension contribution obligations was enhanced.
Should Green not be able to get creditors to agree to his plans, analysts reckon there are few alternative options.
How does a CVA work?
CVA stands for company voluntary arrangement and, in a nutshell, it is an offer by a struggling company to its creditors – usually landlords, banks, the tax man etc.
In a lengthy document, the company has to explain how it got itself into a mess, outline what assets it has, as well as all of its liabilities – i.e. everything it owes – before offering a reduced payment plan.
Things that the firm will usually request include asking landlords to agree to reduce its rents or cancel the lease altogether, while banks might be asked to restructure repayments.
The company sends its CVA pack round to all of the people and organisations to whom it owes money, after which they vote on whether to accept the proposals or not.