From Top(shop) to Bottom: Topshop has to sign a CVA after losing millions

September 18, 2019

2 min read

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What's going on here?

Topshop and Topman’s £498.5 million loss in 2018 has led to Sir Philip Green signing a Company Voluntary Arrangement (CVA).

What does this mean?

Arcadia is the parent company of seven subsidiaries including Topshop, Miss Selfridge and Wallis. Arcadia signed a CVA due to its inability to pay its fixed charges of £100 million a year. As a result of the CVA, 34% of Arcadia’s stores in the UK and Ireland may either close down or lower their rent cost. One of Arcadia’s biggest creditors, Intu (the real estate investment trust), opposed the deal. This disagreement was due to the fact that the CVA will lead to a loss of job opportunities and full rent-paying tenants’ dissatisfaction.

Furthermore, Sir Green may attempt to sell Arcadia’s subsidiaries. Nevertheless, potential buyers may not be attracted  to Arcadia’s 2018 salary plans’ deficit of £537 million.

What's the big picture effect?

A CVA is an insolvency process, where companies can settle their debts by paying a fraction of the amount it owes to its creditors. The Insolvency Act of 1986 stipulates that a parent company can sign a CVA on behalf of its subsidiaries. In Topshop’s case, Arcadia acted on behalf of its subsidiaries. However, the management of the subsidiaries may not always agree with the parent company’s decisions. In such instances, both companies will hire lawyers specialising in restructuring and insolvency. Both legal counsels will seek to evaluate the level of insolvency and other options available besides a CVA. 

With regards to employees, the CVA may lead to a loss of jobs. An “unfair dismissal” is when companies fail to comply with consultation processes when dismissing their employees. With debt leading to store closures, Topshop may dismiss its employees. It is likely that many of those who are dismissed will file for unfair dismissal claims, therefore there will be a transient rise in such work for law firms. Recently, the number of retail companies signing CVAs has seen a large increase, with notable cases including Mothercare and House of Fraser. As a result, law firms can expect to see both employers and employees seeking counsel. Employers’ solicitors will likely negotiate the amount owed to employees. Employees’ solicitors are likely to gather evidence that employees have been unfairly dismissed. It is clear that as retail companies continue to struggle and are forced to take drastic measures, such as signing CVAs, it is essential that law firms provide useful advice to both management and employees alike.

Report written by Marselia Ong

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