Going Intu Administration: Shopping giant faces hard times

July 9, 2020

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3 min read

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What's going on here?

Intu is a corporate landlord that owns several large shopping centres, such as the Trafford Centre in Manchester. It leases the space in these centres to other companies, such as clothes and food retailers. The company entered into administration on Sunday 28 June 2020.

What does this mean?

Administration can be entered into at the request of creditors or a company’s management as soon as a company becomes insolvent and is unable to pay debts as they fall due. Upon entry into administration, all claims against the company are frozen, preventing creditors from bringing an action to recover their money. The administrator then attempts to either rescue the company or enter into another outcome that is favourable to the company’s creditors, such as selling on the insolvent company’s divisions or liquidating the remaining assets.

A full company rescue is relatively rare, companies are more likely to be broken up after they have entered into administration.  However, the piecemeal sale of a company’s assets yields relatively little cash, and as a result, any unsecured creditors (who are last in line to receive pay-outs) will likely see low to non-existent returns.

Moreover, the piecemeal break up of a company will result in managers losing their jobs. It is therefore unsurprising that Intu’s managers made several attempts to postpone the company’s debt repayments. Most notably, Intu was about to become insolvent a few months ago but negotiated a debt waiver in May which postponed the repayment of interest on certain loans.  It tried to extend this waiver; the deadline for negotiating this extension was Friday 26 June. However, Intu was unsuccessful, and the failed negotiation forced the company into insolvency and administration.

What's the big picture effect?

Intu’s precarious financial situation reminds us that lockdown and low consumer demand has knock-on effects beyond the obvious victims of reduced spending like the hospitality and retail sectors. Suppliers and landlords, such as Intu, depend on “first-line” companies continuing to receive regular cash flows. However, when a customer or tenant lacks the money to pay for supplies or rent, second-in-line companies become threatened. Law firms are therefore likely to see a wider number of their clients facing cash flow difficulties, particularly given that many sectors were already struggling pre-coronavirus. For example, a full year before the pandemic, Intu lost £2bn and racked up total debts of £4.7bn. Its biggest rival, Hammerson, has seen its share price fall by 90% in the past five years. These troubles are unlikely to go away soon; Intu had asked for an 18-month postponement of some payments, showing just how long it thought it would take for its finances to recover.

Law firms are also sure to see demand for a wide range of practice areas. As a company attempts to renegotiate agreements with its creditors in order to give it more breathing space, law firms may be asked to draw up a Company Voluntary Arrangement, which is commonly used as an initial compromise between a company and its creditors. However, it is also likely that extensive restructuring and insolvency work will be required, alongside the renegotiation of existing commercial contracts such as loan facilities and sale-and-purchase agreements. Employment lawyers will also be called upon to advise on the rights of employees who will either lose their jobs or be transferred to a new employer. Real estate teams will also be needed if Intu’s properties are sold as part of a restructuring deal.

After Intu’s collapse and a number of high-street stores also entering administration in the last few weeks, it does not look as if the retail industry will recover quickly after Coronavirus.

Report written by Darinka Lipovac

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