The term apocalypse retail describes the threat to the survival of small shops due to the migration of consumption to shopping malls first and to the digital environment later. With the stoppage of confinement, online purchases accelerated, leaving many of these businesses in a situation of insolvency. The lack of income during the pandemic has been saved with injections of public money, especially through ICO credits, not always enough to stop being insolvent. Despite this, the successive extensions of the bankruptcy moratorium exempts from requesting the bankruptcy until December 31 next.
The lawyer José Carles (Carles & Cuesta), shows that “it is difficult for these types of businesses to have the financial capacity to withstand the situation, but not all of them are adopting measures.” To achieve the success of the solutions offered by bankruptcy regulations, in the sector retail “You have to act very quickly,” says Jordi Albiol (DWF-RCD), “because these are businesses that are deteriorating at high speed.”
This has been the case, with a happy ending, for the fashion firm Teria Yabar and the furniture and home products chain Casa Viva. “Unfortunately it is not the usual, possibly due to the bankruptcy moratorium. It will be necessary to see how inaction will be judged in the qualification pieces of future contests, ”says Manuel Gordillo (Abencys).
The restructuring of the business with take-offs or the sale of the productive unit are solutions that can help the retail distribution businesses survive.
The agreement with the creditors by which a cut (reduction of the debt) and a wait (lengthening of payments) is agreed with them is one of the ways to save a company in bankruptcy. “In the agreement option”, says Albiol, “we must count on it being a profitable activity and we must act quickly”. This is demonstrated by the Teria Yabar contest, declared at the end of July 2020, whose agreement has managed to restructure the company in just ten months. Manuel Gordillo, its bankruptcy administrator, considers that his role, “precisely in this sector retail, It should not only be to inform in a favorable way, but it also requires getting involved, for example, in negotiations with the owners of the premises ”. In his experience, when the bankruptcy administration is involved, “better results are obtained for the continuation of the business.” However, it clarifies that “whoever proposes the agreement and manages to convince the creditors is the bankrupt, since that is not the mission of the bankruptcy administrator”.
In order to define the viability and future business model, Carles considers that “you have to calculate how much it costs to close some stores and how to replace sales.” Likewise, when moving to online commerce, it is “necessary to review franchise contracts with territorial exclusivity by zones, typical of the sector. retailWell, they lose all meaning on the internet ”.
Transmission to a third party
Another of the continuity solutions for a business with insolvency problems is for it to be transmitted to a third party, as resulted in the Casa Viva contest, also during the pandemic. Albiol acted as its insolvency administrator and reports that the operation had a “binding purchase offer, an assumable debt and the buyer substituted almost the entire workforce.” “It was very fast,” he details, “since the contest was declared in May 2020 and the sale took place in July of that year.” The factors that contributed to its success were “the agility and proactivity of the court, the law firm (Cuatrecasas) and the bankruptcy administration”, in addition to a good forecast on the part of the company, “because the production units are only sold if they are profitable ”. One year later, the business is still operating. José Carles warns of a possible difficulty in resorting to this figure in the fashion sector, “when the main asset is the designer himself and he is confused with the brand. They are artists and it can be difficult to subject them to the criteria of a third party ”.
The subsistence of the company is not always possible, says Albiol, recalling the case of the company that owns the Amichi fashion brand, in bankruptcy liquidation since the end of 2019. He reviews the volume of the firm, with “more than 100 points of sale and more than 400 workers ”. Describes how “in the sector retail, the majority of assets are inventories, furniture, brands and intangibles; not real estate assets, since almost all the stores are used for rent ”. If there are large debts with the Treasury or Social Security, which cannot be the object of an agreement, it is difficult to find buyers or financing because “investors are informed, sign confidentiality clauses and make their inquiries, but if not they withdraw they see viability ”. Similar was the experience of Manuel Gordillo in the liquidation of the Spanish subsidiary of Coast Fashions.
Experts point out that foresight and agility are the keys to the success of many insolvency proceedings. Gordillo highlights that “the factors for the success of any restructuring process are anticipation and advice.” Specifically, in the retail sector, “knowing it helps”, says Jordi Albiol. “Its logic is easy to understand, but the treasury is very volatile and management must be very agile,” he adds. José Carles understands that the lawyer’s mission is “to provide objectivity and offer solutions” and delves into the “speed with which decisions must be made in a sector also afflicted by the risk of seasonal failures”.