Bittersweet Administration
Prestat - a fancy British chocolatier - has closed its historic Piccadilly store after more than a century of operation.
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Prestat - a fancy British chocolatier - has closed its historic Piccadilly store after more than a century of operation. This closure forms part of Prestat’s insolvent status - the company’s inability to pay its debts.
What the company is therefore doing is selling its brand to another luxury chocolate maker (L'Artisan Du Chocolat) for a nominal amount. A company’s brand is distinct to the company itself, representing the name, logo, reputation, customer goodwill, etc. This sale under insolvency is known as a prepack administration sale, as the company’s brand is being immediately sold to another company as a package.
Prestat’s collapse, despite its longstanding reputation (being the chocolatier to inspire Roald Dahl), has collapsed under the same mounting pressures afflicting premium food retailers in the UK. Surging commodity costs (record cocoa prices), weak UK economic growth, and poor market positioning had wiped out Prestat’s already thin margins. Instead, Prestat will now shift to an online-only model, reflecting the switch by heritage brands to digital operations with lower overhead costs. As such, 100 employees will be affected, with it being unclear whether these employees will be shifted to L'Artisan Du Chocolat or out of a job entirely.
What does this mean for retail, and more specifically luxury retail, operators?
- There is an ever-increasing pressure on premium brands to justify rising high-street rent prices when compared to an online distribution model
- Heritage brands face increased vulnerability trying to justify premium pricing amidst weak consumer confidence and a fall in discretionary incomes
- Foreign-owned UK retail businesses will have to re-assess operating in an underperforming market when better options may present internationally
How to use this in applications
Prepack administration generates legal work for law firms’ Restructuring & Insolvency teams. To have a packaged brand sale ready in a short time frame, law firms will have to support the insolvent company in negotiating and documenting a business sale before the administrators are appointed (at which point all the control goes from the company directors to the administrators). Alternatively, law firms might support a potential buyer in ensuring they are only taking on the brand and not the debts which made the insolvent company insolvent in the first place.
Regarding the closure of physical stores - the Piccadilly store in Prestat’s case - the Real Estate team at law firms may have to support with lease termination, by analysing lease break clauses in the original contract. There may be potential dilapidation liability (tenant’s obligation to repair damages caused to the commercial property) that law firms will have to help navigate too.
A third important point is the employees affected by this insolvency. Employment Law teams at law firms will have to support the handling of TUPE regulations (laws protecting employees’ rights during business transfers) should the buyer choose to take on the employees.
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