Edinburgh third-most impacted UK city amid wave of retail and hospitality restructurings - PwC

Edinburgh is the third most impacted city in the UK as the retail, hospitality and leisure sectors suffer a wave of insolvency restructuring amid the fallout from the pandemic.

Edinburgh saw 59 business sites affected by CVAs, with casual dining and fashion brands most impacted.
Edinburgh saw 59 business sites affected by CVAs, with casual dining and fashion brands most impacted.

Scotland’s capital has been highlighted in a report from PwC, the accountancy giant, examining the use of company voluntary arrangements (CVAs) in consumer facing sectors during the second half of 2020.

The RCHL (retail, consumer, hospitality and leisure) sectors have been subjected to huge pressure for almost a year because of restrictions brought in to control the spread of Covid-19, leading to a 375 per cent surge in CVAs, the study noted.

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Across all sectors there was actually a year-on-year fall in CVAs, which PwC attributed to billions of pounds in government support and a ban on winding up petitions as part of Covid-19 support measures.

However, 25 “large” CVAs were launched by companies with revenues of more than £25 million between January and November 2020, compared to the same period in 2019.

Of those 25 large CVAs to November, 19 were launched by RCHL firms from June onwards, reflecting the business climate facing these sectors at the time.

Analysis of 17 of these CVAs found that almost eight in ten of 2,992 “business sites” across the UK secured agreements with landlords to amend lease terms.

In Scotland, 207 sites were affected by these 17 CVAs. Analysis of these CVAs north of the Border found that 81 per cent of business sites secured agreements with landlords to amend lease terms, while 18 per cent ceased trading.

Edinburgh saw 59 properties affected by CVAs, with casual dining and fashion brands most impacted. In Glasgow there were 40, while in Aberdeen there were 21.

High streets in smaller towns and cities were also casualties of CVAs – with the likes of Stirling, Inverness and Kirkcaldy all seeing more than ten, PwC noted.

Jason Higgs, head of retail at PwC Scotland, said: “Last year brought challenges to the high street which could scarcely have been imagined in worst case scenario planning.

“The closure of shops for repeated periods of lockdown, along with reduced footfall, has led to a number of large companies turning to CVAs as an effective means of survival, with measures including raising new funds from lenders or shareholders, rent reduction and reducing property portfolios.

“The objective of such measures is to provide companies with the best possible chance of continuing to trade as a going concern.

“Our analysis has found different measures have been pursued by companies with the most successful generally being CVAs delivered as part of a full restructuring with all stakeholders sharing the burden and new funds being injected, rather than those that have focused on landlords in isolation.”

The vast majority of sites in the 17 CVAs analysed by the firm saw changes to their lease terms. For the sites where changes were proposed, these included transition to turnover-based rent, rent reductions, write off of arrears and changes to payment terms – often a shift from quarterly to monthly rent payments.

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