Family owned footwear retailer and manufacturer Clarks – along with many other struggling retailers – recently entered into talks with its landlords about store closures and rent cuts.

Tensions are now running high between shop-owners and tenants over what landlords see as unfair tactics being used by tenants to avoid their legal responsibilities under their leases.

Covid-19 has brought into sharp focus what was already a retailing crisis on the high street. As the country enters another lock-down it is abundantly clear that the competitive advantage now lies with out of town supermarkets and online retailers, and it is having a devastating impact on town centres.

Clarks and its advisers went into talks with landlords to discuss a restructuring plan that would see the long established footware chain switch to a ‘turnover rent’ model for future rent payments.

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The proposed deal must be approved by its landlord creditors which would take the form of a company voluntary arrangement (CVA). This is a form of insolvency and a convenient mechanism now commonly used by retailers to lose existing lease obligations, closing existing uneconomic stores, while retaining the core of the business operation on a reduced scale.

However, landlords are now accusing Clacks and its advisors of abusing the CVA insolvency process, presenting landlords with a fait accompli: pushing through a restructuring plan that landlords have little chance of overturning.

What has raised the ire of the landlords, large and small, is the fact that Clarks, a private limited company, has continued to pay out dividends to its family member shareholders.

Clarks is a 195-year-old manufacturer and retailer of shoes which are familiar to almost every family in the UK where its products have been worn by infants to OAPs for generations. It remains largely owned by descendants of Cyrus and James Clark who founded the business in Somerset nearly 200 years ago.

The Clarks CVA launched last week will result in most of its 320 UK high street stores moving to turnover rents, while 60 of its estate will move to zero rents, and all the arrears built-up during the pandemic will be written off to the detriment of landlords.

According to the Sunday Times the Clarks’ CVA process has been compromised because the total of £160m debt owed by Clarks, almost exclusively to its landlord creditors, has been voted through when they have only 25% of the votes, and a CVA needs 75% of the votes to pass.

A Hong Kong-based private equity firm, LionRock Capital, has come in with an offer of £100m in financing for a majority stake in the Clarks business, on the condition the CVA is approved and is passed without legal challenge. LionRock’s injection of the funds into Clarks business is seen as critical to securing the company’s future.

The British Property Federation (BPF), an organisation which represents commercial landlords, had previously launched an attack on the fashion retailer “New Look” for what it referred to as ‘weaponising’ CVAs simply in order to cut its costs.

Melanie Leech, BPF’d chief executive, has been reported as saying:

“The BPF supports a rescue culture for businesses in distress – including CVAs, which were designed to support a struggling business back onto its feet, with store closures and rental discounts, as part of a wider restructuring to safeguard the business’ future.

“It is in property-owners’ interests to support tenants working hard to create a sustainable future for their business.

“The CVA process, however, is increasingly being used by businesses to simply walk away from debt owed to creditors, including local authorities, and to rip up leases freely agreed with property owners, without the business addressing its wider issues. This abuse must stop.”

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