The owner of both Café Rouge and the restaurant chain Bella Italia has filed for administration. This has become an ongoing trend in 2020, largely down to the temporary closures forced by the Coronavirus-driven lockdown in the UK. While the lockdown is still ongoing, many of the restrictions have been eased, allowing most businesses to once again open, though it isn’t without its obvious changes.
The company named, ‘Casual Dining Group’ has struggled to pay rent for its outlets and has appointed Alix Partners, which is seeking offers for parts of the business. The company did actually first apply to the High Court to appoint administrators in May, earlier this year. Though, at that time we had been in lockdown for roughly two months, making it a clear indication that it negatively affected the company.
Out of a total of 250 Casual Dining Group outlets, 91 are closing down, leaving 4,000 further jobs at the firm safe for now. However, 1,900 jobs have been lost due to the closures thus far, and the job losses are expected to continue as the year progresses. This is because of the financial struggles Coronavirus has brought
By far the largest brands for the group are Bella Italia, with 112 restaurants (35 of which are closing); Cafe Rouge with 60 (32 closing) and Las Iguanas with 57 (11 closing down). Bella Italia are the most popular UK attraction out of these outlets, meaning it is also the highest grossing business venture for the owners.
The overarching group also owns four Belgian-themed Belgo restaurants and two brands with airport outlets: Huxleys and Oriel Grande Brasserie. It is expected that the vast majority of these will be permanently closed down due to the administration filing.
Understanding the decision to enter administration
Administration is usually a voluntary process, decided upon by the business owner when experiencing financial difficulties within their company. Though, this doesn’t indicate that administration is a long-term solution, it normally isn’t. Instead, it often helps to open the door to further options and different future avenues that can be travelled down for a business on the ropes.
The administration process can still mark the beginning of the end of your business if it is found to not be a viable entity by administrators. But, at the same time it can also work out to be a positive process and one that helps to develop your company going forward. This is because it can help to restructure your business model where it most needs it, allowing you to make the changes you need in order for your business to succeed.
Going into administration can be a lengthy process and Real Business go into further detail on how this can vary on a case by case basis. They state that, “The process of administration can last anywhere from a few weeks to up to year or more, depending on the circumstances. However, the administrator is always obligated to perform all duties as soon as possible, so speedy administrations are much more common than slow, drawn out ones. Administrators have a maximum of 8 weeks to send out their administrative proposals (their plans for the company) to creditors.
These proposals typically include all of the details about events that led up to the administration, how the administrator plans on achieving the goals of administration, and the most likely anticipated outcome”.
Is your business heading for administration?
You’ve probably heard of companies ‘going into administration’. If the company is insolvent and facing serious threats from creditors, a licensed insolvency practitioner can be appointed by the court as an administrator. This protects the company from creditor claims and legal action, allowing the business to be restructured or prepared for sale.
While a trading administration protects the business, it can be expensive and also creates uncertainty and delay. Continuity is really important. For most businesses, a pre-pack administration is a better option.
A pre-pack provides more certainty, continuity and control. Trading in administration can seriously damage the value of the business, but a pre-pack preserves this value by allowing the assets to be sold as a pre-agreed deal to new or even the original owners, shareholders or directors.
Effectively, the business can continue in a new form, with a much greater chance of success.
Prepack administration has had some bad press in recent years. By nature, it is a closed process and this has the potential to antagonise creditors. When a company is in financial distress, an insolvency practitioner is employed to ready the businesses assets and prepare it for sale as soon as is practical and reasonable after the business formally enters insolvency.
What this means in practice is that by the time that the creditors are made aware of the sale, the sale has already taken place. Hence, from a creditor’s perspective, the ‘done deal’ can be perceived somewhat negatively. If you are a creditor and the money realised from the sale doesn’t cover the money owed to your business, that money will be written off in the deal, regardless. Unfortunately, the prepack process gives you no option to oppose the sale and the process before it takes place.
On the other side of the coin, what this does mean is that the sale of the business is likely to be agreed much more swiftly, which should save jobs in the long run. So, whether prepack is a good or a bad thing can very much depend on which particular side of the process you sit.
The challenges of lockdown
While non-essential retailers have since been allowed to reopen in Northern Ireland and England, analysts have questioned how comfortable customers will feel returning to the shops.
Compared with the same period in 2019, footfall was down 45.3% on the first day of reopening in England, according to retail analyst firm Springboard.
Several big brands have been struggling due to the lockdown measures introduced in March to stop the spread of Covid-19.
Cath Kidston, Laura Ashley and the UK arm of Victoria’s Secret have all called in administrators. A few weeks ago, Poundstretcher announced that it has launched a company voluntary arrangement, an insolvency process that allows companies to continue trading while pushing through store closures and rent cuts.
Don’t be afraid of the insolvency procedure; it is successful far more often than not. The pre pack administration process may be right for your business, though it may not. It is entirely dependant on the state of your business and the other factors surrounding it at the given moment you need to start considering administration.
If your limited or independent business isn’t faring so well due to the recent events of Covid-19, try not to be discouraged. It may sound confusing, but if you can find some heart in the fact that you’re not alone in your business’ financial struggles and other companies/firms of a wide variety of shapes and sizes are facing the same problems, at least you know you’re all in the same boat.
Casual Dining Group are only one of the many companies to have been hit with the unfortunate effects of Coronavirus, as similar cases are happening all over the UK. It isn’t just the hospitality industry that’s getting hit with closures, it is also becoming a common occurrence in the retail sector, as well as others.