In response to news that Poundland is on the brink of administration, leading lawyers suggest this could be the end of the business as we know it and that it’s a stark reminder of the pressure facing parts of the high street.
Nick Stockley, partner in the litigation and dispute resolution team at Mayo Wynne Baxter, said: “The ongoing weakness in the Poundland business has arisen again, however this time it looks like Poundland will not survive.
“Going into administration may well be beyond Poundland’s control because it is the business’ funders who have the power to take that step.
“In any event, if Poundland is insolvent, as defined in the Insolvency Act 1986, then it should be in a formal insolvency process such as administration.
“If Poundland continues to trade when “insolvent” the directors will be acting illegally.
“The impact of administration for Poundland will be a managed shut down of the business.
The stores will close down, the commercial leases will be terminated and employees will be made redundant.
“The administrators will sell on the stock that is held and the administrators may find some value in both the brand name and goodwill.
“However, suppliers will go unpaid and that may well have significant consequences in the supply chain surrounding Poundland.
“The administrators may find buyers for some of the more profitable stores, so Poundland may not entirely disappear from the high streets and some jobs may be saved.
“However, buyers are best served waiting for Poundland to go into administration so they can get hold of its assets and commercial premises at a cheaper rate.
“Given the previous efforts to prop Poundland up, it is very likely that the administrators will be looking to recover what they can for the unsecured creditors, but this does look like the end for Poundland as we know it.”
Kristine Ng, partner in the property dispute resolution team at Morr & Co, said: “The situation surrounding Poundland is another reminder of the pressure facing parts of the high street and the difficult commercial decisions this can create for landlords.
“When a major tenant runs into financial difficulty, the immediate concern is often unpaid rent and recovering the property.
“But landlords should look at the wider picture.
“Getting the keys back quickly is not necessarily the best outcome if the property cannot readily be re-let and the landlord is left with an empty unit, business rates and other holding costs.
“Landlords should therefore be thinking ahead.
“They need to understand the condition of the property and any potential dilapidations, but also look realistically at demand for the unit, the rent it might achieve, any investment or incentives needed to attract a new occupier and how long re-letting may take.
“Rent deposits, guarantees and other security should also be reviewed.
“Ultimately, this is as much a property strategy question as an insolvency question.
“Landlords who have considered in advance whether they actually want the property back, what they will do with it and their likely financial exposure will be much better placed to respond if their tenant’s position deteriorates.”
