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Supercuts: why the hairdressing chain has entered administration

With over 200 salons and 1,400 employees, Supercuts went into administration this week. We look at why this has happened, what a CVA is, and what administration means.

Background

Supercuts (which is owned by Regis UK) has been struggling for the last few years. Last year, Regis had warned that a “perfect storm” of factors (including falling customer numbers and higher wages) had hurt the business, leading to “cash flow issues.”

On top of this, the rise in the legal minimum wage rate, the apprenticeship levy, higher business rates and an increase in the cost of product as a result of the Brexit-led fall in the value of the pound, would also be likely factors.

In 2017, Regis UK was sold by its American parent to global salons operator called the Beautiful Group, which is backed by a US private equity firm called Regent. Its most recent accounts show the business making a loss of £5m on sales of £65m in 2017.

CVA

To battle against its issues, the company embarked on a restructuring process called a company voluntary arrangement, or CVA.

With the CVA law on its side, it demanded its landlords to reduce their rent bills, including asking the landlords of more than 20 of its salons for free rent, as well as cuts to all the others.

Two of the four largest land owners in the UK (British Land and Hammerson) has mounted a legal challenge to overturn the company’s CVA and the outcome of this is yet to be decided. Rob Harding, joint administrator at Deloitte, said:

“Unfortunately, these trading challenges, coupled with the uncertainty caused by the legal challenge to the CVA have necessitated the need for an administration appointment. This is in order to provide protection for the business whilst restructuring and sale options are fully considered and explored.”

Administration

Administration (which is different to liquidation) is a process of creating a legal ringfence around a struggling, insolvent company to prevent further threats to its creditors (which includes the salons’ landlords, its suppliers and its staff).

To do this, it appoints an administrator (in this case the accountancy firm Deloitte) who will need to establish whether the company could remain viable (i.e. could become profitable again). Deloitte will then establishes a timeframe for the administration and implement further restructuring measures to improve the company’s position (which in this case includes looking for a buyer).

What happens next

The salons are expected to trade as normal for the time being and industry sources told Sky News that they expect a buyer for the chain to be found.

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