Debenhams has today filed a Notice of Intent (NOI) to appoint an administrator for a second time as its owners seek to protect the business from creditors during the coronavirus outbreak.
Whilst its online business is still trading, the struggling retailer has millions of pounds worth stock which it cannot sell as all of its department stores are currently closed due to the coronavirus lockdown. This has led to concerns about potential legal claims from suppliers who have yet to be paid.
In a statement, Debenhams said an administration will protect the business from the threat of legal action that could have the effect of pushing it into liquidation.
The group stressed that it was making preparations to resume trading at its stores once government restrictions are lifted, with the filing of an NOI a first necessary step in that process. Debenhams said it was 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.
The group added that it has the support of its lenders and they plan to provide the funding for the move. It also said that payments to suppliers who continue to provide goods and services during the administration will remain unaffected and be paid to terms.
Debenhams has appointed Geoff Rowley and Alastair Massey of FRP Advisory to advise in relation to the administration.
Stefaan Vansteenkiste, CEO of Debenhams, said: “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.
“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.”
Debenhams entered into a pre-pack administration last April and was then sold to its lenders, comprising of hedge funds and banks. It permanently closed 22 stores at the start of this year as part of its turnaround plan, with a further 28 of its remaining 142 UK outlets due to shut in 2021.
Since the coronavirus lockdown, Debenhams has written to landlords seeking a five-month rent holiday and reportedly asked suppliers for a 31-day delay to some payments in order to conserve cash.
Debenhams is one of many retailers in financial difficulties because of the coronavirus shutdown.
Sofie Willmott, a lead analyst at GlobalData, commented: “Placing Debenhams into administration for the second time within twelve months will tide it over for now, freeing it from debts but ultimately its owners are merely stringing out its demise and its long-term future remains bleak. With significant further investment in the business now very unlikely, it is difficult to see what will attract shoppers back once its stores can reopen.
“The department store chain was in already trouble before the COVID-19 pandemic hit and the sharp shift in consumer shopping habits will only speed up inevitable changes in the UK market. Weaker retailers without a unique selling point will be weeded out, with many unable to survive the year.”
Richard Hyman, an independent retail analyst, also said that Debenhams is likely to be the first of many fashion chains in trouble because of an oversupply in the market and the drop in consumer demand.
“There will definitely be more [in difficulty] and quite a lot more,” Hyman said. “But the shakeout may be delayed and you can’t really liquidate assets in this environment.”
NAM Implications:
- Suppliers have to take a realistic view..,
- …and weigh risk & reward.
- Your call…
