Struggling U.K. department store group Debenhams is heading towards administration—again.
The company on Monday said it intends to appoint an administrator as part of an insolvency proceeding that’s the equivalent of a Chapter 11 bankruptcy in the U.S.
The filing is the second one for the British retailer within the past year, after it was taken over by lenders in April 2019 and had about 165 stores at the time. KPMG worked on Debenhams’ restructuring last year, and is expected to be among those in talks with the retailer to handle this year’s filing, which puts a hold on creditor claims for 10 business days until a restructuring plan can be implemented.
Monday’s disclosure was to “protect Debenhams from the threat of legal action that could have the effect of pushing the business into liquidation while its 142 U.K. stores remain closed in line with the government’s current advice regarding the COVID-19 pandemic,” the company said.
Sources said the planned filing is likely in anticipation of possible lawsuits by Debenhams’ vendors for the retailer’s deferral of payments due on invoices.
“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 out 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,” CEO Stefaan Vansteenkiste said.
“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,” he added.
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Debenhams said it plans to reopen stores once government restrictions are lifted. The department store continues to operate online across the U.K., Ireland and Denmark.
The retailer’s lenders support the filing and will provide funding during the process, Debenhams said.
“The group continues to fully engage with all employees and suppliers while operating within a protective arrangement. The majority of the employees in the U.K. 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,” said Debenhams, which has about 22,000 employees.
Stores in the Republic of Ireland are impacted by the same restrictions in the U.K., and employees have been furloughed under the Irish government’s procedure. In Denmark, Magasin, the Danish operation, is also impacted by store closures, but online sales continue, thanks to a highly automated distribution facility, Debenhams said.
The U.K. just started its third week in lockdown mode due to the coronavirus outbreak, shutting down all non-essential retail operations. British apparel and home furnishings retailer Laura Ashley on March 17 also said it was filing for insolvency as the coronavirus pandemic made it difficult to obtain financing to fund its operation. Debenhams also had been struggling with sales over the holiday season, and rumblings of a possible insolvency surfaced earlier this year.
In the case of Debenhams, U.S. hedge funds Silver Point and Golden Tree were part of the current lending group that took over the retailer in its first bankruptcy filing. The lending group also includes global asset management firm Alcentra Group and British investment banking firm Barclays. The 2019 filing wiped out the investment made by Mike Ashley for Frasers Group, formerly Sports Direct International.
Ashley acquired its first investment stake in Debenhams in January 2014 and gradually raised its stake through February 2018. Ashley subsequently acquired House of Fraser, another U.K. department store chain, shortly after it filed for insolvency in August 2018. A month later, there was talk of a possible merger of Debenhams with House of Fraser, but that never went past the initial consideration stage.
Debenhams closed about 20 stores earlier this year, and has another 28 slated for closure next year. It will likely close additional stores during its second tour of insolvency.