Debenhams administration: a much-needed lifeline?
After the rejection of two takeover offers made by Mike Ashley of Sports Direct, , the appointment of administrators to Debenhams’ administration comes as another blow to the UK high street.
The iconic retailer has 166 stores and employs approximately 25,000 people. For now, stores will remain open, but many are at risk of closure in the future, as part of a Company Voluntary Arrangement (CVA).
However, through the doom and gloom, Sean Moran, a partner in our Restructuring Recovery and Insolvency team, believes the administration could be a positive move for the ailing retailer:
“The administration and immediate pre-pack sale of Debenhams gives the retailer the chance to continue trading while ensuring its customers and certain creditors are protected. Nevertheless, this does not mean the store chain is entirely safe. Further restructuring measures will likely be required and a CVA is still on the table.
“There have been record losses in the UK retail sector over the past year, and Debenhams’ administration is evidence of current difficulties that stores are having. Failings in cost-reduction measures, poor Christmas trading, and the rejected takeover from Mike Ashley has led to the retailer being put under the control of a new owner, preserving jobs and its presence as a retail offering.
“Shareholders are no doubt going to suffer from the administration, but it will allow a vital reorganisation of the business’ retail portfolio.
“This reorganisation could mean store closures, perhaps through a CVA. , Although commercial relationships with suppliers are likely to remain unchanged in advance of any further restructuring, suppliers and creditors must prepare for the worst and protect their position through the recovery of goods.
“Creditors should also ensure they have valid retention of title claims if they are supplying an unstable business. This will allow the reclamation of unpaid for goods in the event of a customer insolvency. Suppliers can further protect themselves if the worst is to happen by having a professional advisor review and update their terms and conditions.
“The administration has given valuable time to lenders, retaining a level of stability in the currently challenging retail climate. However, this stability is delicate, and Debenhams could still become the newest UK retail victim.”