Debenhams enters administration

June 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

June 2020 Issue

British retailer Debenhams has filed for administration for the second time in a year. On 6 April 2020, the company announced it had appointed administrators in an effort to save itself from going out of business amid the chaos caused by the global COVID-19 outbreak.

Debenhams has described the process as a ‘light touch’ administration designed to protect it from legal action from creditors while its department stores are shut due to the UK-wide lockdown.

In a statement, Debenhams said: “Department store group Debenhams today has filed a Notice of Intent to appoint an administrator in the UK. This move will protect Debenhams from the threat of legal action that could have the effect of pushing the business into liquidation while its 142 UK stores remain closed in line with the Government’s current advice regarding the Covid-19 pandemic. The group is preparing to enter a ‘light touch’ administration that will see the existing management team remain in place under the direct control and supervision of the administrators.”

Following its previous administration, the company closed 22 stores and had announced plans to shut a further 28 in 2021. In addition to its ‘pre-packed’ administration filing, last year Debenhams also used a company voluntary arrangement (CVA), another form of insolvency, to obtain rent cuts and allow it to close shops.

Debenhams’ website remained open to customers immediately after the filing, as its online trading operations continued as normal. The company was also still accepting gift cards and refunds were being processed as normal. The company also noted that payments to suppliers that continue to provide goods and services during the administration will be unaffected.

The group noted in its statement that it is preparing to resume trading at its stores once government restrictions are lifted, however it is not clear how many of its 142 shops will reopen.

“These are unprecedented circumstances and 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,” said Stefaan Vansteenkiste, chief executive of Debenhams. “We are striving to protect jobs and reopen as many Debenhams stores for trading as we can, as soon as this is possible.”

The majority of Debenhams staff in the UK – around 13,000 – were being paid under the government’s coronavirus job retention scheme, which covers 80 percent of a worker’s salary, up to £2500 a month. But a High Court ruling in mid-April found that the administrators could be liable for those wages, putting the jobs at risk of forced redundancy.

Given its recent history of financial difficulties, Debenhams’ administration is perhaps one of the least surprising developments of the COVID-19 outbreak. In 2019, the company fell into the hands of its lenders – a group of banks and hedge funds led by US firm Silver Point Capital – after struggling for years to keep up with competition from rivals, the growth of online shopping and falling consumer confidence driven by uncertainty surrounding Brexit.

Debenhams has confirmed that it has filed for administration with the full support of its lenders – a group of investors that includes Silver Point Capital, GoldenTree, Alcentra and Barclays – which are providing funding.

Debenhams’ stores in the Republic of Ireland are not part of the administration, nor is its Danish business, Magasin du Nord, which continues to trade online.

Richard Summerfield