When the artist Angela Chick began supplying greetings cards to Paperchase, she thought she’d made it. “As a small business owner, that’s kind of a dream,” the 36-year-old said.
The stationery retailer ordered thousands of cards adorned with her “colourful, cheerful”, hand-drawn designs, to be sold at its 125 UK stores and concessions in Selfridges, Next and House of Fraser.
But in late 2020, she says Paperchase stopped paying its invoices. Emails chasing payments went unanswered. Then, in January 2021, news broke that the company was going into administration, leaving Chick’s business more than £22,000 out of pocket.
Sixteen months on, she is yet to be paid – and the chance of her ever recouping more than a tiny percentage of the money is slim. But while she and other artists continue to struggle, Paperchase stores are trading and thriving, albeit with a new owner. Shortly after going into administration, the chain was bought by the credit arm of a private equity firm.
The controversial rescue deal enabled many stores to stay open and saved about 1,000 jobs, but it allowed the new owner in effect to shed millions of pounds in debts to suppliers, many of them small firms.
It also bought about £7m worth of old stock, according to documents filed with Companies House, and went on to sell products that suppliers had not been paid for. Within months, business was reported to be booming once again. “I’m really pleased to say that the sun has been shining on us and we’re currently trading above plan,” Paperchase’s head of brand told a trade publication last May.
For Chick, it has been “immensely stressful”. “I was going through this, and having people sending me photos of my cards still in their stores that were available for sale. It was like, ‘Hang on a minute. Somebody’s making money off these, but I haven’t.’
“Most customers have no idea,” she added. “Nothing changes in the shops; it’s still the same Paperchase.”
Chick, from Portsmouth, is one of a group of artists from across the UK calling for increased protection for small businesses after they were left bruised – and in some cases facing bankruptcy – by the financial collapse of Paperchase last year.
Though some were initially offered a proportion of the money after the administration was announced as a “goodwill gesture” – in Chick’s case 15% – she says the offer was conditional on them working with the new owners.
“I couldn’t risk that happening again, so I refused,” Chick said. “I was thinking I’d just hold out because I might end up getting something. But I was very wrong about that.”
In the latest twist, the new owner, Permira Credit, which is linked to a multibillion-pound private equity firm, is now said to be selling Paperchase. It has instructed advisers to manage the sale after receiving a number of “unsolicited inquiries” from potential buyers, according to Sky News, following an improvement in its performance.
Another supplier, Sarah Ray, 40, said it “doesn’t feel fair” that the company is now being sold on.
The financial blow for her business – £9,000 – meant she had to use personal savings to plug the gap. “There’s less there for the family, and with living expenses going up, it’s a worry,” she said. “For Paperchase, life carries on. But we’re just expected to take the hit, and who cares? It feels like they certainly don’t.”
The treatment of Paperchase’s suppliers has led to calls for a boycott from some customers. After artists spoke out via Instagram, the company’s account was flooded with comments urging the stationer to “pay your suppliers”.
“When are you going to pay all the small businesses you owe thousands of pounds to?” one person wrote. “So so so disappointed,” another said.
While pre-pack administration deals like the one involving Paperchase can be a way of saving struggling businesses and making them viable again, critics say that they can be abused to offload debts.
They are particularly controversial when parties connected to the failed business buy the assets of the old firm, because this allows them to wipe out the money they owe while in effect continuing to trade as the same company.
In Paperchase’s case, the buyer, Permira Credit, had been an investor for several years; one of the directors linked to the old business – the chief executive, Oliver Raeburn – is involved in the new venture, and much of the stock was carried over.
Paperchase’s suppliers were particularly badly hit because of reforms in December 2020 that changed the order in which creditors are paid, to prioritise HM Revenue and Customs. Meanwhile, as “unsecured creditors”, the independent companies that supplied the firm are the last to be paid, and were pushed “further down the pecking order”, according to Martin McTague, national chair of the Federation of Small Businesses.
“Adding to the pain is the fact that companies in financial distress will often ramp up late payment of invoices before going under, leaving firms with the prospect of getting back only pennies in the pound on what they’re owed, or nothing at all,” McTague said. He called for “strong and decisive government action” to ensure companies are better protected in future.
Liz Faulkner, 31, and her sister, Cat, run the greetings card business Jelly Armchair, which lost about £20,000 when Paperchase went into administration, leaving them on the brink of going under. Only after the death of a family member, which led to an inheritance, was the business able to survive. “Every time something like this happens, it makes things less equal. Not everyone has inheritance to fall back on,” Faulkner said.
Permira Credit and Aspen Phoenix Newco, trading as Paperchase, declined to comment.
