Coronavirus: Debenhams to file for administration

Related Topics
image copyrightAFP

Debenhams will file for administration after the coronavirus lockdown forced it to shut its shops across the UK.

It described the process as a "light touch" administration to protect it from legal action from creditors while its department stores are closed.

Debenhams boss Stefaan Vansteenkiste said the circumstances of the decision were "unprecedented".

"We have taken this step to protect our business, our employees, and other important stakeholders," he said.

Mr Vansteenkiste said it will allow Debenhams "to resume trading from our stores when government restrictions are lifted".

However, he did not say how many of its 142 shops would reopen after the lockdown.

"We are striving to protect jobs and reopen as many Debenhams stores for trading as we can, as soon as this is possible," he said.

It will be the second time in a year that Debenhams has filed for administration. It has already closed 22 stores this year and plans to shut a further 28 in 2021.

The retailer said it is still trading online "normally" while its shops are closed.

It has furloughed the majority of its staff who are being paid under the government's coronavirus job retention scheme which pays 80% of a worker's salary up to £2,500 a month.

"Debenhams has been in financial difficulties for a while so this doesn't come as a major surprise," said Julie Palmer, regional managing partner at restructuring firm Begbies Traynor.

"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."

Pre-arranged deal

Last week, the BBC reported that Debenhams was in urgent talks with its landlords to strike new terms and conditions. They were told that a number of restructuring scenarios were being explored which had "varying outcomes" for the business, landlords and Debenhams' 20,000 workers.

Last April, Debenhams fell into the hands of its lenders, comprising 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.

image copyrightGetty Images
image captionSir Philip Green controls Arcadia which owns Topshop, Dorothy Perkins and Burtons

The lockdown has exacerbated the pressures the struggling retail sector was already facing.

Arcadia, which is controlled by Sir Philip Green, is reported to be preparing to walk away from a number of its property leases.

The firm which owns several well known High Street chains including Topshop, Wallis and Miss Selfridge, has furloughed 14,500 of its 16,000 employees since the coronavirus lockdown and said its board members and senior leadership are taking pay cuts of between 25% and 50%.

Arcadia is also facing uncertainty over the future of its concessions in Debenhams' stores.

'Final straw'

Meanwhile, with all non-essential shops closed, some retailers, such as Primark, have opted to cancel orders with their suppliers.

Fashion chain New Look recently informed its suppliers that payment for stock already sitting in its shops or distribution centre would be delayed "indefinitely".

Independent retail expert Clare Bailey said retailers had already been under strain for the last two or three years because of the uncertainty surrounding Brexit and its effect on consumer confidence.

"[Coronavirus] was the final straw of all the straws that broke the camel's already very broken back," she said.

More on this story