Body Shop administrators plan CVA, retailer owed £276m before collapse

The Body Shop’s insolvency practitioners are planning a company voluntary arrangement (CVA) to help it survive as the full extent of its money problems has become clearer.

Several reports said FRP Advisory is drawing up plans for a deal that would allow the business to negotiate with its landlords in the hope of achieving rent cuts at its stores. Landlords include Landsec, Network Rail and Hammerson.

The Body Shop in the UK owed £276 million to its creditors before its administration. These included those landlords and others, plus suppliers, tax authorities and its international divisions.

Former owner Natura &Co’s Avon unit is owed over £13 million for products it manufactured, making it the largest trade creditor. Some £44 million is owed to trade creditors in total.

A CVA would allow for a rescue and an exit from administration. It would also mean that private equity firm Aurelius, which bought it for more than £200 million early this year and quickly put it into administration, would still own it. If a CVA can’t be agreed, FRP will put the business and assets up for sale.

Such as sale would include The Body Shop name, which is estimated by FRP to be worth £7.9 million. It had been thought that Aurelius controlled this but the transfer of the brand hadn’t been completed before the business collapsed.

CVAs made regular headlines during the pandemic as businesses use them to stay afloat and cut crippling rent bills. But we’ve heard much less about such deals in recent periods.

Given that the company has already announced a large number of UK store closures, a CVA wouldn’t mean more closures. But it would nonetheless still require the approval of the company’s creditors.

Aurelius had come in for heavy criticism for putting the business into administration only weeks after it bought it, but the administrators’ report has shown the depth of the problems that The Body Shop was facing. 

This included a short-term cash position much worse than had been forecast.

Additionally, stock levels had reduced over the peak Christmas trading period and heavy discounting “resulted in a severe shortfall in revenues”.

FRP also said a $76m revolving credit facility “had been repaid shortly before the change of ownership”. This mean Aurelius had to seek additional working capital “plus certain exceptional costs that were not foreseen”.

The chain was also faced by its lenders ending its banking facilities and imposing other conditions resulting in a significant cash shortfall.

It all meant that Aurelius had bought a business in a much worse position than expected and needed to come up with money to meet peak funding requirements of more than £100 million.