JJB Sports looks to have staved off administration – at least for the time being – after becoming the first big listed UK business to sign up to a Company Voluntary Agreement. This will allow the ailing sportswear chain to restructure its various debts, hopefully saving it from going bust and thus preserving some 12,000 jobs. It’s not exactly a charitable gesture from JJB's creditors, since the alternative scenario would probably leave them with nothing more than a few left-over 1998 England football shirts. But it least it provides a glimmer of hope for struggling firms that they might be able to avoid administration if things get even worse…
Under the terms of the deal, which is being signed off this morning, JJB’s landlords have apparently agreed to accept £10m of compensation for the 140 unprofitable stores that JJB plans to close (equivalent to about six months’ rent), and will also allow JJB to pay the rent on its other stores on a monthly rather than quarterly basis. This makes it easier for JJB to manage its cashflow, because it can spread its payments out rather than being faced with a big cash demand every three months.
This may not sound terribly exotic, but it’s actually a pretty unusual outcome. Only 149 CVAs were signed in the last quarter of 2008, compared with 2,018 administrations and 4,607 liquidations; according to the Association of Business Recovery Professionals, most previous attempts have failed either because companies left it too late or because creditors drove too hard a bargain – as happened with Barratts owner Stylo a few months back.
However, it looks like JJB made its creditors an offer they couldn’t refuse – or at least, persuaded them that the consequences of total failure would be even worse. It also sounds like new executive chairman Sir David Jones (who took over after Chris Ronnie’s little mishap) has done a good job of getting them all onside, given that every creditor at the meeting apparently agreed to the deal. ‘[This] is a major step forward in the Board's strategy to secure JJB's long term future,’ Jones beamed.
On the other hand, he’ll know that this is only a temporary solution to JJB’s problems. Its sales have been shrinking fast in the recession, forcing it to put two of its subsidiaries into administration and agree to a fire sale of its sports club business to raise cash. Jones may have a bit more time to play with, now this CVA has removed the Sword of Damocles that’s been hanging over him, but he’s still got some serious work to do to get JJB back on track.
In today's bulletin:
BP's profits tank but share price still spurts
Revenue to spend £1bn chasing tax-dodgers
Curry comperes Consultancy Awards
JJB gets sporting chance
Recession leaves bosses 'caught in a trap'