Commenting on the company voluntary arrangement (CVA) proposal in today's announcement by Mothercare plc, Jim Tucker, restructuring partner at KPMG and a proposed supervisor of the CVA, said:
“For over 50 years, Mothercare has been one of the UK’s most trusted and familiar brands. But like many other traditional retailers, in recent years the Group has been adversely affected by the consumer shift to online shopping, as well as the trend of declining footfall. In addition, the business has been adversely impacted by other pressures impacting the retail sector as a whole including rising costs of labour, product, rent and business rates. Today’s comprehensive proposals to create a fully refinanced, restructured business will allow an accelerated transformation of the business and are a crucial part of Mothercare’s drive to a viable and sustainable future.
“As seen with similar successful CVAs, this proposal is one facet of a wider financial and operational restructuring plan. If approved, and with the support of the company’s lenders, shareholders and landlords, the business will be able to move forward across a smaller, more profitable estate, with a business model more suited to today’s multi-channel retail environment.”
Will Wright, restructuring partner at KPMG and second proposed supervisor of the CVA, added:
“Mothercare currently operates 134 leased stores across the UK. The company is proposing Company Voluntary Arrangements in respect of its three lessee entities, Mothercare UK Limited, Early Learning Centre Limited and Children’s World Limited, which will divide the company’s sites into three categories.
“For a total of 64 ‘Category 1’ stores, the leases will be retained at current rents. For a further 21 ‘Category 2’ sites, a reduced rent, equivalent to 50%, will be paid for three years.
“Finally, for a total of 49 ‘Category 3’ stores, a reduced rent, equivalent to 35%, will be paid for 12 months while the company engages with landlords to agree the basis of any continued trading from these premises.
“Claims for dilapidations on exited stores, and intra-group payables, will also be compromised. It is important to stress that no stores will close on day one, and suppliers will continue to be paid on time and in full.”
Mothercare needs to secure at least 75% creditor approval for the CVA for it to proceed. A detailed proposal document is expected to be made available to creditors via a dedicated website today. The creditors will vote on the CVA on 1 June 2018. KPMG will spend the coming weeks in further talks with key creditors to ensure they understand the full detail of the proposal.
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About company voluntary arrangements (CVAs)
Where a company is experiencing difficulties in paying its debts, the directors can propose a company voluntary arrangement (CVA) whereby the company enters into a legally binding agreement with its creditors, such as their suppliers or landlords. In a similar vein to an individual voluntary arrangement (IVA), which gives an individual an alternative to bankruptcy, a CVA enables a company and its creditors to come to a compromise agreement and avoid an administration or liquidation. A CVA can provide a company with some breathing space to allow it to reorganise or restructure its funding and/or its operations with as little disruption to the day to day trading as possible, with the control of the company staying within the existing management.
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