Withdrawal of Credit Cover to the UK Retail Industry: A Case on Credit Crisis

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Case Details:			Price:
Case Code	:	FINC054	For delivery in electronic format: Rs. 300; For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges Themes Sources of Finance, Capital Structure, Capital Budgeting
Case Length	:	18 Pages
Period	:	2008-2009
Pub. Date	:	2009
Teaching Note	:	Not Available
Organization	:	Euler Hermes, Atradius and Coface, Woolworths
Industry	:	Retail and Credit Insurance
Countries	:	UK

Abstract:

The retail industry in the UK was hit by a sudden withdrawal of credit cover by trade credit insurers in November 2008. The UK trade credit insurance market was dominated by three major players - Euler Hermes, Atradius and Coface. When within a short duration in November 2008, credit cover was withdrawn to nearly 12000 businesses; the industry saw many players facing severe liquidity crunch. As trade credit insurance was a pre-requisite for obtaining credit, a number of retailers faced withdrawal of credit from their bankers, pushing them into administration and subsequent closure. A few leading retailers weathered the difficulty and there were others that benefited from the closure of these businesses by increasing their market share.

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However, the prevailing sentiment among retailers was that the UK Government intervention was required to bail the industry out of the crisis. Measures were undertaken by the UK Government in the form of a stimulus package but were considered inadequate by those affected. This case examines the importance of trade credit insurance for retail businesses in the UK and the implications of its withdrawal on these businesses.

Issues:

» Understand the importance of trade credit insurance in retail businesses.

» Assess the impact of external factors such as macroeconomic environment and trade and business financing and insurance on the operations of an organization.

» Analyze the importance and adequacy of the support given by the UK government to revive the retail industry.

» Examine the impact of global financial meltdown and the resultant credit crisis on the retail industry in the UK.

Keywords:

Credit Cover, Retail Industry, Credit Insurance, Trade Finance, Global Financial Meltdown, Credit Crisis, Credit Control, Euler Hermes, Atradius, Coface, Economic Stimulus Package, Economic Recession, British Retail Consortium, Tough Economic Environment, Working Capital Requirement, Insolvency, Administration, Closure, Global Insolvency Index, Bankruptcy, Business Environment, UK Retail Industry

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