Fashion retailer New Look has secured landlords’ approval for a controversial restructuring that could save thousands of jobs but has caused deep unease in the property industry.
The company had asked its landlords to agree to rents based on shop turnover in order to better align store costs with trading conditions.
It had also warned repeatedly that it would go bust if the controversial insolvency process, known as a company voluntary arrangement, was not approved.
A separate financial restructuring, involving heavy losses for the company’s bondholders, was contingent on landlords agreeing to rent cuts.
Nigel Oddy, chief executive, thanked landlords and creditors for supporting the restructuring and stressed that physical stores had “a significant part to play in the overall retail market and our omnichannel strategy”.
But Melanie Leech, chief executive of the British Property Federation, said the insolvency process “is wrongfully being used as a weapon by businesses to rip up leases permanently”.
“Property owners find their interests again wholly undermined by a flawed process which forces them to accept a prejudicial outcome for their investors,” she added. “This mis-use of CVAs must stop.”
Several big property groups, including British Land and Land Securities, are believed to have voted against the proposals.
At least three-quarters of unsecured creditors, mostly landlords, need to approve a CVA before it can become effective.
New Look said it could not yet reveal exactly how many had assented, but did say it had secured a majority of landlords as well as more than 75 per cent of overall creditors.
Katherine Campbell, head of real estate disputes at law firm Reed Smith, said the proposal was “unprecedented”.
“The sector has never seen anything like this. This is a watershed moment and could set a powerful precedent,” she added.
Other retailers, notably Sports Direct and Hennes & Mauritz, have been demanding turnover rents, and previous CVAs by fashion brand AllSaints and stationer Paperchase also featured them. But no insolvency process has put this many stores on to revenue-linked leases at one time.
New Look’s proposal was also controversial because it was the second time in as many years that the company has asked landlords to cut rents. A previous CVA in 2018, superseded by the new one, resulted in the closure of more than 130 shops and rent reductions at many more.
Following that process, the company also overhauled its management team, refocused its product offering and pulled out of overseas markets such as China.
It also undertook a financial restructuring that imposed heavy losses on bondholders and installed financial institutions such as CQS, Alcentra and Avenue Capital as the company’s shareholders.
There had been signs of progress, but the onset of the Covid-19 pandemic had a severe impact on a company that historically has only made about a fifth of sales online.
As lockdown loomed in the UK, sales fell 32 per cent in March and are down 38 per cent since stores started to reopen in mid-June.