By guest author Elias Jahshan from Retail Gazette
- Debenhams has filed a notice of intention to appoint administrators
- The move would protects Debenhams from legal claims from creditors in the short term
- FRP Advisory drafted in to advise in relation to the possible administration
Debenhams has filed a notice of intention to appoint administrators, bringing the retailer closer to a second insolvency process in a year as struggles amid the coronavirus crisis.
The 242-year-old department store chain said the notice of intent to appoint administrators would provide short term protection from legal action from creditors that could otherwise push the business into liquidation while its 142 UK stores remain closed due to the government-mandated lockdown.
Debenhams said the notice of intent was also the “first necessary step” to ensure it can make preparations for the return of store trading once lockdown restrictions are lifted.
Debenhams said it was preparing enter what it described as a “light touch” administration that will see the existing management team remain in place under the direct control and supervision of the administrators.
The retailer added that its notice of intent has the support of lenders, and that they plan to provide the funding for the administration.
Debenhams said it appointed Geoff Rowley and Alastair Massey of FRP Advisory to advise in relation to the possible administration.
News of Debenhams’ plans to file a notice of intent first emerged on Friday, with accountancy firm KPMG reportedly placed on standby to handle a fresh insolvency process.
Should it end up taking the step to file for administration, it would mark 12 months since the struggling retailer last fell into administration, after which its current owner – a consortium of banks and lenders known as Celine – launched a CVA within the same month.
“The group continues to fully engage with all employees and suppliers while operating within a protective arrangement,” Debenhams said in a statement.
“The majority of the employees in the UK are currently being paid under the government’s furlough scheme owing to all stores being temporarily closed.
“Payments to suppliers who continue to provide goods and services during the administration will remain unaffected and be paid to terms.”
Debenhams continues to trade online across the UK, Ireland and Denmark, in line with government guidelines, while the lockdown continues.
Customer orders, gift cards and returns are also being accepted and processed normally.
Debenhams in Ireland is affected by the same trading restrictions as the UK and employees have been furloughed under the Irish government scheme.
The retailer’s ring-fenced Danish business Magasin is also affected by store closures but continues to trade online with the benefit of its automated distribution facility.
Chief executive Stefaan Vansteenkiste the “unprecedented circumstances” that forced Debenhams to file a notice of intent to appoint administrators today.
“We have taken this step to protect our business, our employees, and other important stakeholders, so that we are in a position to resume trading from our stores when government restrictions are lifted,” he said.
“We are working with a group of highly supportive owners and lenders and anticipate that additional funding will be made available to bridge us through the current crisis period.
“With their support and working with other key stakeholders, including landlords, pension trustees and business partners, we are striving to protect jobs and reopen as many Debenhams stores for trading as we can, as soon as this is possible.”
The news comes a day after it was revealed that Debenhams failed to make a top-up payment to its pension scheme this month, as previously agreed with trustees, sparking fears that 10,000 members could be worse off amid a looming administration.
A Debenhams spokesman confirmed with The Sunday Telegraph that the money had not been transferred as per the agreement, and that permission had not been sought from the Pensions Regulator.
Debenham’s pension scheme is also reportedly in significant deficit.
However, the Pensions Regulator had recently announced that companies could access a three month pension contribution holiday over the Covid-19 disruption period.
The sponsors of pension schemes can also hand over liabilities to the Pension Protection Fund (PPF).
Nonetheless, the Debenhams spokesman told The Sunday Telegraph that it would not to “dump” pension liabilities into the PPF, and that discussions with the trustees and the PPF were ongoing with the aim to secure a temporary suspension in contribution payments.
Debenhams also has hundreds of millions of pounds of inventory on order from suppliers that it no longer requires due to the government-mandated order that all non-essential shops must shut to help curb the spread of the highly contagious Covid-19.
In addition, last month the retailer wrote to landlords asking for a five-month rent holiday and additional store closures as part of its ongoing CVA launched last May, so as to avoid becoming the next retail casualty from the pandemic.
Debenhams first fell into administration in April last year after a tumultuous period that saw retail tycoon Mike Ashley, who was the department store chain’s biggest shareholder at the time, attempt a boardroom coup before Celine took control.
The CVA, which was approved a month later, included rent cuts of 25 per cent to 50 per cent on some stores and around 50 stores earmarked for closure.
The first tranche of store closures – 22 sites – took place in January, well before the coronavirus outbreak became a pandemic and sent the UK into a state of crisis.