Tue, 22 May 2018 | ADMINISTRATION
Mothercare has reinstated its former chief executive Mark Newton-Jones and announced plans to close 50 stores amid the delivery on an insolvency rescue package.
According to the retailer, it plans to push forward its store closure plans in a bid to gain £113.5 million of funds through the removal of 50 sites. Additionally, this refinancing will be supported by the pursuit of a Company Voluntary Arrangement (CVA), a form of insolvency that will allow the company to secure rent reductions to reduce outgoings.
This move, which is becoming popular with high street companies, will also buy the company more time to trade and avoid going into administration while potentially searching for a buyer, according to Simon Underwood, business recovery partner at Menzies LLP.
"Allowing a business to continue trading and its existing management to retain control, CVAs are sometimes viewed as a more attractive option than other methods of insolvency, such as pre-pack administrations," said Mr Underwood.
"However, if all struggling retailers start taking this route, it could make matters worse for the ailing High Street – with more shoppers moving online and creating more empty stores.
The decision to pursue insolvency has also been taken by other large high street brands, including Toys R Us, Carpetright and Prezzo, all of which have closed a number of their stores in a bid to save money while they seek reductions in rents and other overheads.
Commenting on Mothercare's decisions moving forward, the firm's chairman Clove Whiley, added: "These measures provide a solid platform from which to reposition the group and begin to focus on growth, both in the UK and internationally."
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