Next buys Joules out of administration​

By Jake Rickman
Image credit - Postmodern Studio / Shutterstock.com​

What do you need to know this week?

Online retailer and FTSE 100 company Next has purchased the British fashion retailer Joules Limited out of administration.

Joules, known for its rural-chic clothing lines, entered administration in November after it failed to reach a restructuring agreement with creditors or obtain rescue financing (also called a cash injection).

According to a Financial Times article published in November, an independent financial analyst cited a multitude of factors that seem to be hitting UK retail businesses particularly hard as the reason for Joules’ collapse:

“It’s a combination of things…it’s not just trading over the last two to three months, it’s not just the pressure on freight costs, it’s not just the fact they had supply chain issues last year, but the cumulative impact in terms of what that’s done to the balance sheet has taken a toll.”

Why is this important for your interviews?

As the unofficial theme this week seems to be corporate distress and default, Joules is a useful case study in looking at how these concepts play out in practice.

Most companies in financial distress will strive to reach a consensual restructuring agreement with their creditors to avoid defaulting on their debt. Usually, this involves a combination of:
  • Issuing shares to creditors in exchange for a debt write-down (“debt-for-equity swap”)
  • Granting creditors additional security over the company’s assets
  • Selling off business divisions and valuable assets to raise cash
  • Sourcing rescue financing, such as from a private equity firm; and/or
  • Reorganising senior management and undertaking employee redundancy schemes.
Administration is one of a few outcomes that often follows when a company and its creditors cannot arrange a consensual restructuring.

We have previously looked at the function of pre-pack administration sales, such as in the case of retailer McColl’s rescue, where an administrator is appointed for the specific purpose of selling the company to the buyer. In most cases, the administrator knows who the buyer is before the company enters administration.

The Joules situation is different in that it went into administration without anything lined up.

Next has evidently been on a tear recently: last month, it also acquired certain intellectual property and associated branding assets from Made.com after it collapsed.

How is this topic relevant to law firms?

As The Lawyer notes, Slaughter and May’s corporate and restructuring teams advised Next on its acquisition of Joules. Shoosmith advised Joules and its administrators.