Loss-making BHS has won a reprieve after creditors agreed to a rescue package by way of a Company Voluntary Arrangement (CVA) on Wednesday.
A CVA is a legally binding arrangement with creditors that provides a lifeline to struggling companies that enable debts to be paid off over a given period while, theoretically, turning the business around.
BHS had warned it would not be able to trade in its current form from the end of this week when rent on its stores became payable.
The CVA will see 87 of the 164 stores pay reduced rent ranging from 25%-75% of the existing rental.
Negotiations will continue with landlords on 40 of the stores on which 25% of the current rental will be paid and which will trade for a minimum of 10 months.
These outlets will remain open where rent reductions are achieved. Brian Green, restructuring partner at KPMG and second proposed supervisor of the CVAs, said: “It is hoped that the store closure numbers will be kept to a minimum.”
The 77 stores which will continue to pay the full rent will switch to monthly, as opposed to quarterly, payments for three years.
The CVA could see landlords receive 6.15-10p back to the pound, the BPF said.
Darren Topp, BHS chief executive, said on Wednesday that the company could now continue with its updated turnaround plan, announced when Retail Acquisitions bought the group last March from billionaire Sir Philip Green’s Arcadia.
Keith Smith, chairman of Retail Acquisitions, said at the time it wanted to breathe new life into BHS, introducing a food offer and expanding internationally.
Topp said: “It’s a tough time for retailers across the UK with huge structural challenges faced by all. However, we have a very credible plan to return BHS to growth and profitability and a revitalised British Homes Stores will emerge as we accelerate our turnaround plans.”
It had been a challenging time during the CVA process, but the agreement with the group’s creditors showed the right strategy was in place as well as the right team to deliver the strategy, Topp added.
The company is not out of the woods yet. It has until 30 September to negotiate a new deal with the Pension Protection Fund, which must include a significant amount of cash ploughed into pension fund liabilities of up to £571m, or face collapse.
Melanie Leech, chief executive of the British Property Federation, said that while the CVA would help alleviate some of the short-term pressures on the company, it was “imperative that the owners of the company now raised capital to reinvigorate it.”