Wilko has now called in administrators, putting more than 12,000 jobs across 400 stores at risk after reported discussions with rival discount retailers and two private equity investors failed.
A stalwart of the high street and known for its affordable homeware, Wilko faced tough competition from budget retailers alongside high interest rates, soaring energy costs and squeezed consumer spending.
The retailer’s advisers PwC are reported to be in discussions with rival discount retailers and two private equity investors to rescue the business most likely through a company voluntary arrangement (CVA).
The Government’s Insolvency Service which tracks company failures reports a 40% increase in insolvencies and a 38% increase in CVAs in the first five months of 2023 compared against the same period last year.
With tough economic trading conditions continuing it is likely that more businesses will follow, with retail and hospitality businesses often hardest hit.
The collapse of any business, whether a retail giant or small family-owned company, is a challenging time for its management team, creditors and, of course, its employees. It pays to have experienced advisers on hand to address the often technical corporate, employment and property law aspects.
Here, we touch on three areas businesses of all sizes need to keep in mind.
Any business experiencing financial difficulties should seek advice as early as possible. The earlier advice is sought, the greater the options open to that business to affect a rescue. A corporate lawyer, often working hand in hand with a specialist restructuring or insolvency practitioner, should be top of that list.
A corporate lawyer is well placed to take a holistic view of the business looking to a potential restructuring or sale. In addition to any regulatory compliance responsibilities, a corporate lawyer can manage corporate governance matters, take stock of contracts, suppliers, assets owned by the business and any intellectual property rights.
They will work closely and coordinate with specialist employment and property lawyers.
A company falling into administration does not automatically see employees’ contracts end. It is, however, common for administrators to make redundancies to reflect the company’s trading conditions.
Staff made redundant in the first two weeks of an administration will be entitled to arrears in pay and if eligible, redundancy pay. Those that remain are treated in the same way as ordinary creditors and will often be the last to be paid. If funds are not available to pay those employees they can recover some of their lost wages from the National Insurance Fund.
If and when a company in administration is sold, the Transfer of Undertakings, called the TUPE rules, will apply, with staff taken on by the new owners. Those owners can, however, continue to make redundancies but will need to carry out the necessary collective consultation process.
How commercial property is addressed when a tenant falls into administration will largely depend on whether the property is owned by the business, if borrowing is secured against that property, or if the property is occupied through a lease.
A property owned outright will potentially be a valuable asset. If essential to the running of a business, the administrator may choose to continue using the property to generate funds for creditors. Alternatively, the property may be sold with proceeds distributed to creditors.
If a mortgage is held against the property, it is a little more complex. Lenders are considered secured creditors. It may be possible for the business to continue to use the property but consent from the mortgage holder will be required. If sold, the mortgage holder will have a claim on sale proceeds over other creditors.
In most instances, a business will lease property and here tensions can arise. When a business enters into administration a moratorium is put in place to give the administrators the opportunity to rescue the business. The moratorium effectively restricts a landlord’s ability to start legal proceedings to recover rents or recover the property.
The eventual outcome of the lease will depend on the results achieved by the administrator, but most landlords will hope for an early liquidation to allow them to quickly relet a building.
Take early advice
The collapse of any business will be a distressing time for all parties involved, yet it is a highly prescribed process governed by well-established legal principles. It is important to take advice from a law firm that can provide both a holistic view alongside the specialist and technical support needed.
For further information, confidential advice or support contact please contact Rhian Radia Partner and head of our Employment team firstname.lastname@example.org or Andrew Kavanagh Partner and a member of our Corporate and Commercial team email@example.com. Tel: +44(0)20 7631 4141
The above is accurate as at 10 August 2023. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.