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Message: <blockquote data-quote="Angel" data-source="post: 11247" data-attributes="member: 980">3. US Retail Sales – Trade War [USER=525]@Sara Moon[/USER]The story:US retail sales fell by 0.2% in April, due to a decline in sales of automobiles, building materials, clothing, health and personal care, electronics and appliances. US factory production also fell in April for a third time this year, particularly in machinery and motor vehicles industry. The weak performance of US retail industry was due to the ongoing US-China trade war, which discouraged consumers to make purchases. China also showed lower than expected growth of its retail sales, reporting a rise of 7.2% from a year earlier, which was the slowest growth since May 2003. With Trump recently having raised tariffs on $200 billion worth of Chinese imports from 10% to 25% and threatening to levy 25% tariffs on all Chinese imports, it is expected that retailers will be facing another painful hit next month.Impact on businesses and law firms:If the weak performance of the retail industry continues, which is likely considering another tariff increase, massive store and factory closures may happen as a consequence. For many clothing retailers, such as Victoria’s Secret and Gap, that have already been struggling without the impact of the tariff due to increasing competition in the industry, Trump’s further increase in tariff may act as another impetus to shut down more of their stores.The Economist produced an article last week stating that the recent trend in businesses has been “deconglomeration” instead of “conglomeration”. This means that instead of focusing on augmenting their size, many companies decided to sell unprofitable divisions to concentrate on developing profitable ones. The ongoing impact of the trade war may act as a trigger to many big businesses considering restructuring to confirm selling off unwanted parts or those that have already decided to restructured to do so earlier than expected. Selling off means, on the other side of view, acquiring new business. Therefore, corporate M&A departments of law firms might see growing cases to work on. Restructuring of companies also requires corporate lawyers to advise on compliance of important legal requirements as well as employment department to advise on avoiding breach of any employee rights.4. UK Retail Sales – Debenhams [USER=980]@Angel[/USER]The story:One of the many high-street retails affected by the high-street crisis (that is, the decline of UK retail chains) is Debenhams. This led to the chain announcing the two proposed Company Voluntary Arrangements (“CVAs”). A CVA is a statutory procedure provided by the Insolvency Act 1986 to assist companies in financial difficulties. It important to understand that a CVA is not an end in itself. It is merely a restructuring tool to implement a commercial deal - a contract between the company and its creditors. The terms of this contract will be negotiated with the overarching aim to rescue the company by reducing its debts (ie, borrowings and obligations owed to creditors).  In this instance, some key proposals by Debenhams are to close down 22 stores by early 2020 and obtain rent cuts from its landlords.The requisite majority voting in favour of a CVA for it to go through is 75% by value of those voting and above. Earlier this month, Debenhams successfully obtained the requisite by an overwhelming surplus (90% and above for both proposals). This is an important aspect of the tool for it ‘crams-down’ dissenting unsecured creditors. That is, it is irrelevant that minority unsecured creditors disproved of the plan. They are nevertheless bound by it.Since the initiation of the insolvency process, many other matters have arise. Debenham’s CEO resigned and took away a £700,000 pay-off. the company is now controlled by a consortium of banks and hedge funds. Mike Ashley’s Sports Direct (the once biggest shareholder in Debenhams) is also seeking to challenge a pre-pack administration deal (a sale of the business negotiated by the administrators to the prospective buyers) because this deal resulted in wiping out Ashley’s equity interest in Debenhams.Impact on businesses and law firms:The decision to close down underperforming stores comes at a hefty price. It places approximately 1200 jobs at the risk of redundancy. Lawyers will be engaged to oversee the process. It is important to ensure that the employees are treated fairly and compensated adequately in order to avoid litigation that may damage the company’s reputation.Indeed, Debenhams is only one of the many big retails affected by the decline of UK high street stores. Restaurant chains like Prezzo have announced closures while others, like toy-store chain Toys r Us and electronics retailer Maplin, have fell into administration.There are many factors triggering such a decline. First, there have been a fall in consumers’ discretionary spending since the Brexit vote. That is, shop prices increased disproportionately to the increase of wages. This left consumers with less disposable income to spend. Other reasons include the shift to online shopping in recent years, the changing tastes of consumers, and the fierce competition from new brands.In order to save a company from such a financial distress, it is important for the business to know the reason causing the decline. That is, whether it is a good business with potential to improve but is merely stuck with a bad balance sheet due to unfavorable times (and thus worth saving), or if its products or services are simply not in demand anymore (and thus, even luck permits a rescue this time, it is unlikely that the business will sustain in the long-run). Professional service providers will be engaged to help the company analyse and reach the right decisions.Finally, it is important to note that there is no ‘one size fits all’ solution. The implementation of a CVA is only one of the many ways to restructure debt. It is the lawyers’ job to advise the client on other legal methods based on the client’s needs. For instance, should Debenhams require a different commercial deal and if a moratorium (that is, an automatic stay/ injunction on its creditors from enforcing on any claims) is required this time, formal administration proceedings would be more appropriate compared to a CVA.</blockquote>

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