Debenhams to appoint administrators for second time in a year

Debenhams has confirmed it intends to appoint administrators for the second time in a year as it tries to protect its assets from creditors during the coronavirus lockdown.

The struggling department store chain said the process would provide it with protection from the threat of legal action “that could have the effect of pushing the business into liquidation while its 142 UK stores remain closed”.

The retailer’s creditors will be prevented from pursuing legal action for 10 working days while the company tries to secure a rescue deal.

The company, which has 22,000 staff, was rescued by its lenders after collapsing into administration only a year ago.

Debenhams said it had the support of its lenders to enter administration and was engaging with its employees and suppliers.

“The group is making preparations to resume trading in its stores once government restrictions are lifted,” the retailer said.

The majority of the group’s employees in the UK are being paid under the government’s furlough scheme following its order for all non-essential stores to close.

Debenhams is continuing to trade online across the UK, Ireland and Denmark, and customer orders, gift cards and returns are being accepted and processed normally.

Despite continuation of online trading, Debenhams could not generate enough revenue to keep itself afloat, said Julie Palmer, a partner at insolvency firm Begbies Traynor.

“Debenhams has been in financial difficulties for a while so this doesn’t come as a major surprise, but it will leave its 20,000 plus strong workforce in a precarious position who will struggle to get new employment during the ongoing uncertainty,” Palmer said.

Debenhams was taken over last year by a group of its financial backers, including the US hedge funds Silver Point and GoldenTree, after collapsing into administration. It then used an insolvency process known as a company voluntary arrangement (CVA) to cull unprofitable sites and cut rents.

Since then, it has closed 22 stores, 19 of which shut in January, resulting in more than 700 job losses. A further 28 of its remaining stores had been slated for permanent closure next year.

Debenhams’ renewed collapse into administration could lead to a revival of interest from Mike Ashley’s Frasers Group, formerly known as Sports Direct, which has previously suggested a merger with its House of Fraser department store chain.

Ashley’s £150m investment in Debenhams was wiped out in the retailers’s administration in 2019 and he later argued for a legal challenge to the chain’s CVA store closure plan.

Debenhams, which has more than £600m of debt, is one of many retailers in financial difficulties because of the coronavirus shutdown.

Since the lockdown began, Debenhams has written to its landlords asking for a five-month rent holiday, a move echoed by other chains including New Look and Topshop owner Arcadia. Two of Britain’s largest shopping centre owners, Intu Properties and Hammerson, reported that they had only received around a third of rent due from their tenants for the second quarter of the year on its due date at the end of March.

An extended period of store closures has left Debenhams and many of its fellow fashion retailers with a large amount of stock which they cannot sell, as an estimated £10bn of clothing piles up in warehouses.

Retail insiders reported that major firms including Primark, Peacocks, Arcadia and Next had all stopped taking deliveries to their warehouses because they had no more room.

Many brands have continued to trade online during the government-mandated store closures. However some companies such as Next and Moss Bros have also been forced to close their websites and online operations following concerns about protecting workers picking and packing goods in their warehouses from infection.

As Britons stay at home, reducing their need or desire to purchase new clothes, analysts at GlobalData has predicted the amount consumers will spend on clothes and shoes will plummet by 20%, or £11.1bn, in 2020.