Fashion retailer AllSaints has had its CVA proposal approved as it looks to save its store business – bucking the recent trend for troubled retailers to seek to go online-only.
The CVA proposal, first mooted in June, was approved by 93% of AllSaints’ creditors, as it seeks to ensure the long-term viability of the business.
As part of the move, the retailer will see landlords of most of its 41 UK stores and 42 US stores forced to move to turnover rents – showing that, while the retailer has upped its online presence during the lockdown, it is firmly committed to continuing with a store model going forward.
The retailer has 255 stores worldwide in 26 countries and, prior to the pandemic, says that it delivered year-on-year revenue growth for five successive years. It also delivered sales growth in every region and across every channel in which it operates for the most recent financial year ending in February 2020.
In a statement, the retailer said: ““While AllSaints is now beginning to re-open its stores around the world, it is doing so in the environment of an ongoing pandemic, with extensive social distancing measures in place, and significant uncertainty around customer appetite to travel and shop in store. A compromise with the group’s creditors, via the CVAs, is therefore now required to ensure the viability of AllSaints’ business. This will enable the group to sustain a strong physical retail presence, which in turn will allow it to protect jobs and continue to serve its customers.”
What do landlords think of turnover?
The CVA, while approved by the majority of AllSaints’ landlords, has raised questions again as to impact of forcing rents down on landlords.
According to property lawyers firm Collyer Bristow, disgruntled retail landlords have previously and unsuccessfully tried to challenge CVAs which impose rent reductions.
However, it said that such a move would be unlikely to succeed this time, either. And perhaps turnover rents are more fair to both landlord and client than a blanket rent reduction.
Gavin Kramer, a senior associate specialising in insolvency and commercial litigation at Collyer Bristow comments. “Following the High Court’s decision in Debenhams Retail Limited , which rejected a challenge mounted by disgruntled landlords to Debenhams’ CVA, the position of insolvent retailers hoping to mitigate the effect of onerous leases through a CVA has been greatly strengthened. The High Court held that Debenhams’ CVA, which imposed a reduced rent on landlords, did not unfairly prejudice the landlords’ interests as they retained their right to terminate the leases as varied.”
He continues: “A CVA proposal by AllSaints imposing turnover rates, provided its drafting reflects the court’s criteria for fairness set out in the Debenhams decision, should therefore have every chance of surviving a challenge by aggrieved landlords.”
Collyer concludes: “Turnover rents were imposed on landlords in the recent, successful CVA of Paperchase Products Ltd, which entered into the CVA without any subsequent challenge on 22 March 2019 and exited it on 20 August 2019, following the CVA’s successful implementation. Indeed, it could be argued that turnover rents, which will rise if the company’s position improves, are fairer to landlords than a blanket rent reduction.”