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Wave of examinerships on way as retailers fight sky-high rents

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RETAIL THERAPY: Fashion from Pamela Scott. The firm’s exit from examinership, along with that of B&Q, is expected to lead to an increase in retailers following the same path to escape sky-high rents

RETAIL THERAPY: Fashion from Pamela Scott. The firm’s exit from examinership, along with that of B&Q, is expected to lead to an increase in retailers following the same path to escape sky-high rents

RETAIL THERAPY: Fashion from Pamela Scott. The firm’s exit from examinership, along with that of B&Q, is expected to lead to an increase in retailers following the same path to escape sky-high rents

An avalanche of retailers will go into examinership in the next few months to escape sky-high rents, following last week's landmark cases involving fashion retailer Pamela Scott and DIY giant B&Q.

And a major legal change which means that small businesses under pressure will be able to opt to enter examinership in the less expensive Circuit Court, rather than the High Court, will also increase the number of companies seeking the 100-day protection that the examinership process offers.

According to one of the country's leading experts on examinerships, fear of reputational damage stopped many of the big names going into examinership in the past.

"That has all changed now. Even this week, in the wake of the successful exit from examinership of Pamela Scott and B&Q, we have seen a massive increase in the number of inquiries," according to Neil Hughes, of Hughes Blake Chartered Accountants, which was involved in a majority of examinership cases that came before the Irish courts last year.

Asked why so many landlords wait for a company to go into examinership before agreeing to reduce rents, Mr Hughes said in many cases it was understandable.

"Typically a landlord is also in a position of some difficulty. They may have a bank behind them and the bank may have Nama behind them so you have very strong pressure on the landlord to keep the rents exactly where they are," he said.

"There is always the thought in the landlord's mind that 'they [the tenant] are not really going to go into examinership'."

But Mr Hughes says that among small, medium and even large businesses the spectre of going into examinership does not hold the fears it once did.

"In 2007 and 2008 no one would countenance going into examinership or any insolvency process because of the perceived reputational damage that might accrue to them. Certainly large corporates such as B&Q or Atlantic Homecare, which was the first one, would not have made that decision."

But he said there had been a seismic shift.

"Retailers are now saying: 'We don't care about perceived reputational damage. We are simply not paying these rents any more.' Unfortunately, the landlord's bluff has been called. They have no answer and as a result rents are coming tumbling down.

"We had an example last year of a company in Cork which renegotiated its rent from €100,000 a year down to €20,000 – an 80 per cent reduction.

"Even this week, ourselves and other companies specialising in examinership have seen a huge pick-up in the number of inquiries and questions about the process. I think it is likely that more and more retailers will enter examinership in the course of the next year."

There were nine examinerships in the first quarter of this year, five of them retailers.

Another major factor which will increase the number of companies seeking examinership is that the process will now move to the Circuit Court meaning costs will be substantially reduced.

The measure is contained in the Companies Bill 2012, which is in the process of going through the Dail.

"It will mean that the number of jobs that will be saved as a result of companies going to examinership will also increase," said Mr Hughes.

Irish Independent