A retail outlet in Wood Green, North London, traded from leasehold premises in a shopping precinct and sold women’s mid-range clothing.
The store was popular in the area, and trading was strong, with sales increasing year on year. Expansion was planned, and the business acquired two adjoining shops on a leasehold basis so that bigger premises could be opened. Other trading ventures included opening and closing ‘pop up’ stores in prime locations, often for a limited time, such as a few weeks.
The managing director also decided to purchase a freehold property on a mortgage as a company investment. This property was rented, and the income was paid into the company’s bank account. It was subsequently sold and the mortgage was redeemed. The bank also granted an overdraft facility that was supported simply by the managing director’s personal guarantee.
Insolvency Pressures
Fashion retail is a fast-moving and highly competitive sector and the company underwent a dramatic change of fortune when a large, low-cost retailer opened in the same precinct – almost overnight, sales fell by almost 50%.
The managing director tried to initiate a range of measures such as introducing cheaper ranges and running frequent sales and promotions. But these were not effective enough, and sales did not pick up sufficiently. The landlord agreed to a reduction when they couldn’t pay commercial rent and said a move to another unit, away from the low-cost store, would be facilitated should one become available.
However, there were no other suitable vacant units and even with a further rent reduction, the company began to lose money and experienced a trading loss of £150,000.
Closing a Company via a CVL
The managing director propped up the business using his personal funds, although this was only a short term solution – there was pressure on the company to vacate.
This was because the landlord had been approached by a larger retailer who wanted a presence in the precinct and so the leases were forfeited on grounds of non-payment of rent. It was agreed that the rent which was owed, after deduction of the retained deposit, would be written off. The business had a deadline to vacate the precinct and had nowhere else to go, so the only option was to cease trading. Since there were insufficient funds to discharge the residual liabilities, professional guidance was sought from Company Debt – our recommendation was to enter into creditors’ voluntary liquidation.
