Ted Baker’s administration shows how unsecured creditors can recover only next to nothing while insolvency expenses and adviser fees rank ahead.
Ted Baker’s collapse has produced the kind of insolvency outcome creditors know too well: the brand survives somewhere, the bills get paid in layers, and unsecured creditors receive scraps.
Reports on the administration show unsecured creditors are expected to recover only a small fraction of what they were owed. Administrators and advisers have incurred substantial fees, including legal fees. None of this is unusual in a large retail insolvency which is why creditors find it so maddening.
Insolvency law follows a payment order. Secured creditors and insolvency expenses usually sit ahead of ordinary unsecured creditors with trade suppliers, landlords with unsecured balances and many smaller creditors often near the back of the queue. When there is not enough money, who is in the queue suddenly becomes more important than the size of the debt!
Administrators need advice on asset sales, employment, leases, claims, creditor communications, intellectual property, disputes and statutory duties and even with Good advice, the process can still leave unsecured creditors with very little because the business failed with too much debt and too few assets.
A creditor receiving pennies in the pound may look at professional fees and conclude the insolvency system works best for professionals, and although that stance is jumping the gun a little, it sometimes contains enough truth to make the profession uncomfortable. Transparency over fees allows creditors to see what work was done, why it was necessary and how it helped the estate.
Retail insolvencies also show how modern brand ownership complicates public understanding. A high-street name may disappear from shops while intellectual property sits elsewhere and the brand continues online. Customers think the business has gone. Legally, the intellectual property like the valuable name, operating company, licences and debts may sit in different companies meaning the brand can continue Scott-free in another vessel despite troubles within previous trading entities. That structure can be legitimate but can also leave creditors feeling as if value walked out through a side door before the bill arrived.
Ted Baker’s fall highlights the harshness of the priority line in insolvency. When a company fails, being owed money is not the same as being in line to receive it.
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