Fears are growing that Arcadia group, which includes high street retailers Topshop, Burton and Dorothy Perkins, will go into administration this week, putting 13,000 jobs at risk
There are reports that Deloitte has been called in to look at options for the company, owned by fashion entrepreneur Sir Philip Green.
Arcadia has previously put out a statement saying that coronavirus restrictions and reduced footfall in shops had put pressure on the business, which had been unsuccessful in seeking a £30m loan.
Cameron Gunn, co-founder and senior partner of ReSolve, said: ‘It is no secret that retail has been one of the hardest hit sectors in the UK economy due to Covid-19 leading to closure of non-essential shops and its material impacts on retailers’ ability to trade at a level that keeps them financially healthy. This is only exacerbated by the economic uncertainty that has led to less spending.
‘Arcadia has had well-publicised financial struggles and utilised seven CVAs in late 2019 to help it manage its debt burden.
‘It was at this time it announced it would be focusing on digital, which was definitely the right thing to do. What we have seen in the past several months is that the retailers that have a strong online presence and know how to engage online with their customers are doing much better than those that underestimated the power digital and neglected to invest in it.
‘However, in the case of Arcadia it may have been too little, too late with the likes of boohoo, Asos and other online-only brands already eating up its market share.’
There are concerns that any collapse at Arcadia would have a ripple effect on its suppliers, with the invoice insurance business Nimbla estimating that around £250m of invoice could go unpaid.
Flemming Bengtsen, CEO at Nimbla said: ‘The much-needed injection of cash into UK businesses via CBILS and BBILS has succeeded in staving off insolvency for many SMEs.
‘However, it has also created a wave of “zombie” companies that have little realistic chance of survival. Arcadia’s collapse highlights the danger of a domino effect as defaults on trade credit trigger others to fail. We estimate as much as £250m of unsecured debts will be left behind to Arcadia’s suppliers.’
News of Arcadia’s potential fall into administration comes one day before the insolvency rules regarding preferential suppliers are to change, giving HMRC greater preference than previously.
For insolvency procedures starting after 1 December, certain sums due to HMRC but held by businesses when they enter formal insolvency rank as secondary preferential debts in the order of priority.
This means they are paid ahead of secured creditors holding a floating charge (for example banks) and ahead of non-preferential creditors (for example suppliers).
Only specified HMRC debts are included. These are VAT and debts related to PAYE, employee National Insurance contributions (NICs), students loan repayments, and construction industry scheme (CIS) deductions.
PAYE/NIC (employee contribution) deductions that were withheld by a business from funds claimed from the coronavirus job retention scheme (CJRS) fall within the preferential claim.
For businesses that enter insolvency on or after 1 December, the full amount of the specified debts which arose prior to the date of insolvency is payable as a secondary preferential debt.
However, other amounts due to HMRC are not included within a preferential claim.
Not included are amounts which are not held on behalf of other taxpayers, for example, climate change levy, corporation tax, or employer NICs.
Also exempt are any penalties and interest owning to HMRC, for example those which have arisen as a result of late payment, late returns or incorrect returns; loan charge in form of notional payments under PAYE regulations; and excess payments under the CJRS paid to businesses in error.
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