Editorial: Zombie problem is the key insolvency issue

by Accountancy Age Staff

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06 Jan 2012

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SO BLACKS HAS ENTERED into its second restructuring process in two years.

The high street retailer, famous for its Blacks Leisure and Millets brands, will be sold on through a pre-packaged administration - with shareholders losing their investments.

KPMG, watching over the process, managed Blacks' company voluntary arrangement (CVA) process back in 2009. A CVA keep the business alive but reduces debts, with insolvency practitioners creating and managing a repayment plan to creditors.

The firm has also overseen two CVAs for fellow high street brand JJB Sports.

The first JJB CVA back in 2009 was lauded for its innovative structure, stores paying monthly rents rather than quarterly, while attempting to pay off landlords of unwanted stores.

While JJB limps along, Blacks creditors and shareholders are set to lose out.

Tough questions have to be asked about the use of CVAs, and more generally whether insolvency processes have been used to prop up dead, or ‘zombie', businesses.

On occasion this would undoubtedly be the case.

But what would be the alternative for Blacks, and JJB for that matter, if they'd just collapsed and broken up?

Thousands of job losses and out-of-pocket creditors would be the upshot.
Making a call on whether the wrong restructuring strategies have been used is a tough call.

But there are thousands of employees and suppliers to big companies that might find it tough working with a struggling business - but it's better than no business at all.

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