Insolvency practitioners expect ‘tactical’ voluntary administrations to increase as retailers accelerate restructuring after emerging from lockdown.

“We may see the use of what I’d describe as tactical administrations, administrations that are really designed to restructure the business because they’ve not been able to achieve it on a consensual basis,” said KPMG restructuring partner James Stewart, the former joint administrator of Jeanswest, which was sold back to its former owners after closing a quarter of its stores.
“Sometimes the owners of those businesses just need to fix it and the best way is to put it through an administration process that’s not the preferred way but when all other options are exhausted that might be the way they have to lean into stores,” he said.
Mr Stewart and Mr Longley said government support packages put in place during the pandemic, including JobKeeper wage subsidies, the six month moratorium on insolvent trading laws and the code of conduct for landlords and small and medium sized tenants had helped many retailers avoid collapse. Insolvency activity was currently at historically low levels, despite the prolonged retail malaise and the record drop in spending in April.
However, Mr Longley expects more retailers, particularly in the hospitality sector, to collapse after the JobKeeper package winds up in September, with activity likely to spike in November/December and remain elevated during calendar 2021 unless new stimulus measures are put in place.
“We thought it would start in March but because of the stimulus packages it might not start until October and early 2021,” said Mr Longley.
Mr Stewart believes struggling retailers are likely to call in administrators even sooner, when the federal government clarifies its plans for JobKeeper and other supports.
“That burning platform retailers might otherwise have had has temporarily been pushed to one side, the government packages have done their job,” Mr Stewart said.
“The challenge is they can’t keep those packages going forever, at some point they’ll unwind and how the government does that will also have an impact on whether or not retailers need to look at insolvency processes as a way to restructure their business,” he said.
The number of retailers that fall into administration will also depend on whether landlords are prepared to reduce rents or restructure rental agreements.
Several major retailers including Solomon Lew’s Premier Investments, Accent Group and Lovisa refused to pay rent when their stores were closed.
KPMG restructuring partner James Stewart.
 Jeremy Piper
“COVID is effectively turbocharging five years of disruption into three months,” said Mr Stewart. “Because it’s accelerated that disruption all of a sudden landlords and retailers who would otherwise have had five years to work out a new model now have three months to work it out.”
Mr Stewart said 50 to 60 per cent of retail landlords were cooperating with tenants, reducing and deferring rents to enable them to trade through the pandemic.
“The balance of landlords are taking a hard line and saying the contract is the contract, the rent is the rent, you need to pay me,” he said.
“What happens post COVID, and to what extent can those leases be recalibrated so they work for the landlord and work for the tenant on a medium term basis in a changed market.”
Restructuring experts believe the moratorium on insolvent trading may need to be extended or insolvency laws changed to give businesses more breathing room to weather the post-pandemic storm.
“There is an argument for a temporary and bespoke COVID-19 administration process,” said Mr Stewart.
“It may be we need to look at some different restructuring arrangements to help companies look at their balance sheets,” said Mr Longley.
PAS Group, led by chairwoman Launa Inman and CEO Eric Morris, have said the company is solvent but believe administration is the best way to restructure the business in the current environment.
PAS Group’s major landlords are Vicinity Centres and Scentre Group. On Monday, Vicinity launched a $1.4 billion capital raising to prop up its balance sheet and reduce debt, while Scentre Group shored up its liquidity with a $US1.5 billion ($2.3 billion) bond deal last month.
Mr Longley said the administrators were assessing sale and restructuring options, but had no current plans to close any of PAS Group’s 225 stores, which had recently reopened as lockdown laws eased, and would continue to trade to sell winter stock ordered before the pandemic.
“We’ve been contacted by a number of parties on Friday and over the weekend (trade buyers and private equity investors) who are interested in the business so we’ll run a process on that and line up the different proposals that come in as well,” he said.
“As to what a restructure might look like, we don’t see our role to actually implement a full restructure, we see our role is to mainly work with parties on how they might want to restructure the group and provide them options,” he said.