What just happened?
The clothing and homeware retailer, Cath Kidston has filed a notice of intention to appoint an administrator on 3 April 2020.[1] As retailers have been temporarily closed amid the COVID-19 pandemic, more companies may follow suit.
What does that mean?
Due to the adverse impact of the shutdown of retail shops, Cath Kidston has failed to recover from its pre-existing struggling financial position. Under the Insolvency Act 1986, companies can choose to appoint an administrator with an aim to rescue the business.[2] Hence a plan to administration does not mean the company will go bust immediately. It has ten days to look for a buyer before creditors move in to claim the debts or enforce the security.
There was successful rescue such as House of Fraser whereas BHS had failed to find a buyer and went out of business. Given the uncertainty of COVID-19, it might be challenging to find a buyer to keep Cath Kidston’s business running. If it eventually closes down, over 900 employees may lose their jobs with closure of 60 shops in the UK, while suppliers and landlords will also be affected.
How will this affect the legal industry?
Law firms may see a shift of works for companies at insolvency risk. Due to the financial difficulty of large retailers, especially those without online business, reduction in corporate and commercial transactions is expected. Restructuring & insolvency practice will be the focus. Lawyers have to pay particular attention on the developments of insolvency laws of jurisdictions where their clients operate. For instance, UK companies’ directors are now protected by provision of temporary suspension of wrongful trading for three months.[3]
Employment is another important practice to deal with unprecedented measures. Cath Kidston has now put 87% of its employees under the government’s furlough scheme to retain their jobs.[4] Legal advice to both employers and employees would be highly sought if more companies face financial difficulty. Hence law firms at national and local levels would be relevant to the changes.
Assessing Firms:
#Allen&OveryLLP #Ashurst #BrycanCaveLeightonPaisnerLLP #CliffordChanceLLP #CMS #Dentons #DLAPiper #EvershedsSutherland(International)LLP #FreshfieldsBruckhausDeringerLLP #HerbetSmithFreehillsLLP #HoganLovellsInternationalLLP #Kirkland&EllisInternationalLLP #Latham&Watkins #LinklatersLLP #NortonRoseFulbright #PinsentMasonsLLP #Slaughter&May #White&CaseLLP
Written by Cleo Ho
References:
[1] Coronavirus: Cath Kidston set to call in administrators (BBC, 5 April 2020)
[2] What does it mean to declare insolvency? (BBC, 3 April 2020)
[3] . COVID-19: Company directors given breathing space (New Law Journal, 30 March 2020)
[4] Coronavirus: Cath Kidston set to call in administrators (BBC, 5 April 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.