Over the years, there have been issues affecting the operational performance of companies operating in the United Kingdom (UK) retail sector leading to many well-known retail companies going bust. Corporate insolvency law provides rescue procedures aimed at ensuring the survival of a distressed company and/or its business as well as maximizing value in these companies for the benefit of creditors. However, it remains that most companies that undergo rescue procedures end up failing, resulting in suboptimal outcomes for stakeholders of the company. Thus, there is a constant struggle between the objectives of value maximization and survivability of rescued companies.
To this end, this thesis examines the effectiveness of corporate rescue procedures in achieving these objectives. The study begins by analyzing the drivers of financial distress and insolvency generally and in the retail sector. It proceeds to trace the development of the corporate rescue concept and examines the main rescue tools available to a distressed retail company in the UK mainly, schemes of arrangement, company voluntary arrangement (CVA), administration, pre-packaged administration(pre-pack) restructuring plan and the moratorium procedures.
Given the prominence of CVA in retail restructuring, this thesis has at its core an examination of this procedure. It explores the mechanics of this procedure and considers the operation of CVAs in retail restructuring cases. It attempts to understand the problems that hamper the effectiveness of CVAs and offer recommendations to this effect. Subsequently, it explores the pre-packaged administration (pre-pack) procedure which is often the alternative to CVAs in retail insolvency cases and considers the role of pre-packs in retail rescue whilst making some comparative analysis between CVAs and pre-packs.
This thesis finds that, while unsecured creditors fare better in a CVA in terms of outcomes, same is not the case in pre-packs as the procedure is attuned to lower realizations for these creditors. This project further examines whether the restructuring plan procedure offers a viable alternative to the problems identified in both CVAs and pre-packs. It finds that the judicial involvement in the restructuring plan procedure may be helpful in addressing some of the problems identified in existing procedures.
