CityAm chose to lead on the permanent closure of 22 restaurants rather Prezzo’s new owners saving 156 high street eateries, along with their 2,700 jobs. But it’s not unusual for the media to report what’s gone wrong, rather than what’s gone right, writes Michael Kashis, Managing Partner and Head of our Corporate & Commercial team.
You can read their article in full here.
Private equity firm Cain International bought Prezzo out of pre-pack administration in December. Like many restaurants they went into administration after failing to reach agreement with landlords on rent payments.
Jonathan Goldstein, Chief Executive of Cain International, could have been representing the views of all of us professionally advising businesses on how to weather the pandemic when he told Sky News: “We firmly believe that strong hospitality businesses, such as Prezzo, have a bright future and will play an essential role in reviving the UK economy. However, to do so we must get through this current crisis of mounting liabilities and no revenues.”
One reason why there have been fewer insolvency cases as anticipated is down to the suspension of winding-up-petitions. The Government decided to suspend the issuing of such petitions as a move to ease creditor pressure, it remains to be seen if this will be extended further.
The news about the pandemic is improving every day, but we should expect that a backlog of winding Up Petitions will eventually come through and some companies could be forced into liquidation.
Whilst many thousands of companies have taken out Bounce Back Loans which were backed in full by the Government to survive the worst of the pandemic. The Chancellor is already being urged not to turn off the taps when he announces the Spring Budget on March 3 but if businesses that were struggling have not taken steps to restructure the next two quarters could be harsh.
According to accountancy firm EY a total of 583 profit warnings were issued by UK listed companies in 2020, this is the highest annual total in 21 years of EY research – 15% higher than the previous record of 506 in 2001. This historic high contrasts with very low levels of corporate insolvency.
Dan Hurd, Head of Turnaround and Restructuring Strategy at EY in the Midlands, said: “Many UK businesses have been treading on thin ice for months with government support propping them up. While there is speculation these measures could be extended until the summer, the countdown has started, and in the coming weeks or months we’ll find out how many of these companies can keep their head above water.”
“For businesses that avoid administration, the mission ahead is immense, but not insurmountable. Balance sheets and capital are a top priority. While many businesses have sustained or built cash reserves, they have done so by deferring significant outgoings and accessing government and bank support. When this support falls away, cash reserves may deplete rapidly to fund working capital, the return of staff, pay rent and rates, as well as service much higher levels of debt. Meanwhile, supply chains continue to demand attention as we adjust to new trade agreements post-Brexit. Further reconfiguration is also needed as pressure intensifies for companies to adapt and remain relevant to customers, with a sharpened focus on their purpose and contribution to society.”
Michael Kashis is a Partner in our Corporate & Commercial team. Should you require any further advice or assistance, please contact us at firstname.lastname@example.org
The above is accurate as at 15 February 2021. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.