What just happened?
The UK arm of Victoria’s Secret has been hit by changing consumer tastes and weakened spending.[1] The retailers hired administrators from Deloitte after being hit by the coronavirus lockdown putting more than 800 jobs at risk.[2]
What does this mean?
After years of scandal and declining sales, the iconic lingerie retailer Victoria’s Secret is struggling to survive through the coronavirus pandemic.[3] In 2016, the company’s fashion show was accused of cultural appropriation from both the Chinese and Mexican culture, resulting in a decline in its market share.[4] In 2018, the company saw declining sales and the lowest rating ever.[5] In 2019, the company’s 53 stores in the US were closed after its stock plunged 40%[6] and its fashion shows were cancelled as they lacked diversity and were branded as sexist and out dated.[7]
In February 2020, the private-equity firm Sycamore Partners was to acquire a 55% share in Victoria’s Secret from its owner, L Brands for $525 million.[8] However, Victoria’s Secret ended tie-up with Sycamore after Sycamore sued L Brands in April seeking to terminate the deal arguing that Victoria’s Secret’s coronavirus-led decision to shut stores and stop paying its rent had violated the terms of the deal.[9]
The company called in Deloitte for a “light touch” administration after it was hit by the forced closure of high streets during the pandemic.[10] The firm had already furloughed 785 of its 800 plus workers in the UK before appointing administrators.[11] The staff will remain on furlough whilst administrators try to find a buyer for its assets or re-negotiate its rent, in a bid to pull it out of administration.[12] Next and Marks & Spencer have expressed interest in taking on the UK operations of Victoria’s secret and have been negotiating with the administrators from Deloitte.[13]
How does it impact the legal sector?
Light touch administration has the ability to maintain the continuity of the business and to protect the business and exit administration as a going concern.[14] Wrongful trading is a statutory offence under s214 and s246ZB of the Insolvency Act 1986. This means that if the company has gone into administration and the director of the company has failed to take all the steps which a reasonably diligent person would take to minimise the potential loss to the company’s creditors, then the director would be liable for wrongful trading. The corporate Insolvency and Governance Bill became law on 25th June 2020. The bill was amended during its passage through Parliament and s12(2)(b) of the act now provides that the suspension of liability for wrongful trading applies from 1 March 2020 to 30 September 2020, and may be extended further.[15]
Furthermore, other measures to be put in place to minimise the risk of the businesses going bust include a moratorium for financially distressed but ultimately viable companies to prevent creditors from taking action for a specified period without the leave of the court.[16] Restrictions have been placed on the circumstances in which the winding up petitions may be presented and there is a prohibition on the termination of goods and services contracts by reason of the company entering into an insolvency procedure.[17]
Written by Samriti Rudhra
Assessing Firms
#Deloitte #AddleshawGoddard #Linklaters #BurgesSalmon #GowlingWLG #GateleyPLC #Mills#ReeveLLP #PinsentMasons #ShakespeareMartineau #EvershedsSutherland
References:
[1] ‘Victoria’s Secret UK arm goes into administration’ BBC (5 June 2020) < https://www.bbc.co.uk/news/business-52938462> accessed 14 August 2020.
[2] Sarah Young, ‘Victoria’s secret goes into administration in UK putting 800 jobs at risk’ Independent (5 June 2020) < https://www.independent.co.uk/life-style/fashion/victorias-secret-administration-uk-collapse-bust-job-losses-cuts-a9550876.html> accessed 14 August 2020.
[3] Sahar Nazir, ‘Victoria’s Secret: What went wrong?’ (Retail Gazette, 11 June 2020) https://www.retailgazette.co.uk/blog/2020/06/victorias-secret-what-went-wrong/ accessed 14 August 2020.
[4] Sahar Nazir, ‘Victoria’s Secret: What went wrong?’ (Retail Gazette, 11 June 2020) https://www.retailgazette.co.uk/blog/2020/06/victorias-secret-what-went-wrong/ accessed 14 August 2020.
[5] ‘Victoria’s Secret UK arm goes into administration’ BBC (5 June 2020) < https://www.bbc.co.uk/news/business-52938462> accessed 14 August 2020.
[6] Sahar Nazir, ‘Victoria’s Secret: What went wrong?’ (Retail Gazette, 11 June 2020) https://www.retailgazette.co.uk/blog/2020/06/victorias-secret-what-went-wrong/ accessed 14 August 2020.
[7] ‘Victoria’s Secret UK arm goes into administration’ BBC (5 June 2020) < https://www.bbc.co.uk/news/business-52938462> accessed 14 August 2020.
[8] Lauren HirSCH, ‘Victoria’s Secret to go private in a deal that values the once-powerful lingerie brand at $1.1 billion’ CNBC (20 February 2020) < https://www.cnbc.com/2020/02/20/sycamore-partners-to-acquire-control-of-victorias-secret.html> accessed 14 August 2020.
[9] Andria Cheng, ‘Victoria’s Secret Ends Tie-Up with Sycamore as coronavirus deepens fo-alone woes’ (Forbes, 4 May 2020) < https://www.forbes.com/sites/andriacheng/2020/05/04/victorias-secret-ends-tie-up-with-sycamore-as-coronavirus-deepens-go-alone-woes/#7f532c573821> accessed 14 August 2020.
[10] Helen Knapman, ‘Victoria’s Secret goes into administration in UK putting more than 800 jobs and 25 stores at risk’ The Sun (5 June 2020) < https://www.thesun.co.uk/money/11761752/victorias-secret-goes-into-administration-in-uk-putting-more-than-800-jobs-and-25-stores-at-risk/> accessed 14 August 2020.
[11] Helen Knapman, ‘Victoria’s Secret goes into administration in UK putting more than 800 jobs and 25 stores at risk’ The Sun (5 June 2020) < https://www.thesun.co.uk/money/11761752/victorias-secret-goes-into-administration-in-uk-putting-more-than-800-jobs-and-25-stores-at-risk/> accessed 14 August 2020.
[12] Helen Knapman, ‘Victoria’s Secret goes into administration in UK putting more than 800 jobs and 25 stores at risk’ The Sun (5 June 2020) < https://www.thesun.co.uk/money/11761752/victorias-secret-goes-into-administration-in-uk-putting-more-than-800-jobs-and-25-stores-at-risk/> accessed 14 August 2020.
[13] Sahar Nazir, ‘Can Next or M&S turn Victoria’s Secret around?’ (Retail Gazette, 2 July 2020) https://www.retailgazette.co.uk/blog/2020/07/can-next-or-ms-turn-victorias-secret-around/ accessed 14 July 2020.
[14] ‘Should more businesses and insolvency practitioners be thinking about ‘light touch’ administration?’ (Addleshaw Goddard, 1 May 2020) https://www.addleshawgoddard.com/en/insights/insights-briefings/2020/restructuring/should-businesses-thinking-light-touch-administration/ accessed 15 August 2020.
[15] Geoffrey P Burges and others, ‘Suspension of Wrongful Trading Provisions in the UK’ (Debevoise & Plimpton, 26 May 2020).
[16] Geoffrey P Burges and others, ‘Suspension of Wrongful Trading Provisions in the UK’ (Debevoise & Plimpton, 26 May 2020).
[17] Geoffrey P Burges and others, ‘Suspension of Wrongful Trading Provisions in the UK’ (Debevoise & Plimpton, 26 May 2020).
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.