Revolution, the city centre bar chain, is considering shutting venues after it was rocked by the latest government-imposed Covid-19 restrictions, including the 10pm curfew that began this week.
Revolution, which has about 70 bars, said it was weighing up whether to launch a company voluntary arrangement (CVA) – a form of insolvency procedure that struggling businesses can use to shrink rather than risk failure.
It comes days after trade bodies warned that almost a quarter of hospitality businesses fear they will collapse before Christmas without further financial support.
In a statement, the company said the financial difficulties caused by the pandemic had been “exacerbated by the further Covid-19 related restrictions announced by the government earlier this week”.
The 10pm curfew is expected to cause significant financial hardship for bars, which rack up almost a quarter of their sales after that time, according to analysis from the industry expert Mark Brumby, of Langton Capital.
What is a company voluntary arrangement?
A company facing financial difficulties prompted by heavy debts can apply for a company voluntary arrangement in order to avoid administration or other more disruptive forms of insolvency.
It is a legally binding insolvency process in which a company cuts a deal with creditors on unsecured debts. In retail, this usually involves asking landlords of poorly performing shops to reduce rental payments or allow the company to exit leases on stores which they would otherwise be bound to for long periods.
Companies hire an insolvency practitioner to assess the business and whether a CVA has a reasonable chance of success. They then produce a CVA proposal which may involve changes to the terms of leases or termination of onerous supply or employment contracts.
In order for a CVA to go ahead, the company must call a meeting of unsecured creditors, which may include suppliers and landlords. For the CVA to be approved, creditors who are owed at least 75% of the company’s total unsecured debt must vote in favour. At least 50% of creditors who voted for the CVA must not be connected to the company.
Once approved, the company can continue trading as usual and all unsecured creditors are bound by the deal, even those who voted against it or didn’t vote at all.
Creditors are often willing to support a CVA in the hope of recovering more cash than they would if the company went into administration or liquidation. They hope that reducing debts will help create a viable company that can continue to trade and pay them.
The process is popular with managers because they usually remain in charge of the company and it is cheaper than other forms of insolvency.
Revolution’s bars are also located in city centres, which will be experiencing far lower footfall after the government reversed its encouragement to return to the office, advising people to work from home where possible instead.
If Revolution launches a CVA, the process typically involves asking landlords to accept lower rent payments and closing the least profitable sites.
The process has proved controversial, particularly among landlords who have previously accused some firms of using CVAs as an easy fix for poor business performance.
However, Revolution said it had a fundamentally strong business and had only been forced to consider the plan because of circumstances beyond its control.
“No decisions have yet been made and there is much further work to complete before the board decides on any appropriate course of action,” the company said in a statement.
“Revolution has a strong balance sheet following the £15m equity fundraising and the extension of its banking facilities announced in June but the board believes that the long-term nature and potential impact of the latest operating restrictions means that it must consider all necessary options to ensure that its business remains viable.”
