Credit insurer shelves new cover for Sir Philip Green's Arcadia Group

The biggest credit insurer in the UK is refusing new cover for Sir Philip Green's Arcadia Group amid brutal trading on the high street.

ITV News has seen correspondence between Euler Hermes and clothing suppliers which show that Euler is further reducing its exposure to the risk of Arcadia defaulting on its payments.

The decision not to write any new cover affects all of Arcadia's brands including Topshop, which has traditionally been the most successful. Existing policies will be honoured but cover will be reduced and Euler Hermes is considering phasing it out entirely.

The emails we’ve seen cite concerns about the financial health of Sir Philip's retail business as well as an increase in the number of claims across the sector generally and the impending effects of Brexit for the decision.

One supplier says they have been told the position will be reassessed when Arcadia files its accounts for the financial year ending August 2018. In recent months Euler Hermes has reduced cover for a series of other fashion retailers including Debenhams and Oasis.

In retailing, suppliers often have to deliver goods to the shops in advance, typically waiting at least 60 days for payment. Credit insurance is designed to provide suppliers with protection, ensuring they get paid even if the retailer runs into financial difficulties and is unable to pay its bills.

Euler Hermes markets its credit insurance as the "essential safeguard when customers default". The company describes itself as the "world's leading provider of trade credit solutions" and claims that its 1,500 risk experts have "up to date business intelligence on 40 million companies" enabling them to establish how solvent they are.

Last month The Sunday Times reported Euler had reduced the insurance cover it extends to Arcadia's suppliers for the second time in 12 months.

The loss of credit insurance can cause retailers significant problems. Suppliers are more likely to start asking for payment up front, in extreme cases they cease to supply.

Euler Hermes said in a statement on Monday night: "Euler Hermes never comments on the activities of individual clients or their business partners for reasons of confidentiality.

"However, we remain very supportive of the retail sector in a time of extensive uncertainty and change. We also keep in close dialogue with our customers to help them assess their trading risks and the purchasing strategies of their clients.

"As a result, and on an individual case-by-case, it is common for us to adjust credit limits - upwards as well as downwards - to reflect this."

Arcadia is the parent company of Topshop and Topman, Miss Selfridge, Evans, Wallis, Burton and Dorothy Perkins. The group employs 20,000 staff and operates 571 standalone stores in the UK and more than 300 concessions.

The last set of accounts show the group made a profit of £52 million in the year until August 2017. Burton and Miss Selfridge lost money while sales across all the main brands were down on the year before.

We approached Sir Philip Green and Arcadia but neither was available for comments.

However, in a statement on Friday, Arcadia admitted it is looking at restructuring the group in an attempt to cut costs and revive its fortunes.

Arcadia said it is "exploring several options" to address "an exceptionally challenging retail market" but insisted that none "involve a significant number of redundancies or store closures".

One of the options being considered is a Company Voluntary Agreement (CVA) which would allow Arcadia to reduce its debts to its creditors while continuing to trade. Typically, a CVA requires landlords to accept significant cuts to the rent they receive.

If Arcadia were to propose a CVA it would, in effect, be admitting that the business is on the cusp of insolvency. If creditors refused to accept the CVA the business could fall into administration unless either a buyer could be found or Sir Philip were willing to invest more money in the business to keep it solvent.

In a separate development, the chair of the Work and Pensions Committee, Frank Field MP, has written to Arcadia’s Group Pensions Manager, Margaret Hannell, seeking clarity on the financial position of Arcadia’s two UK defined benefit pension schemes.

The schemes, which have 11,000 members, had an accounting deficit of £300 million in August 2017, although Arcadia has increased payments to £50 million a year to reduce the shortfall.

Earlier last month Baroness Brady stood down as chairman of Arcadia Group without offering a reason for her departure.