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Debenhams prepares to file for bankruptcy

Sarah Butler

Debenhams is preparing to call in administrators after the struggling department store was forced to close all its outlets under the coronavirus lockdown.

The company, which has 22,000 staff and was rescued by its lenders after collapsing into administration only a year ago, is understood to be considering filing a formal notice of intention to appoint administrators next week. The legal process provides protection from creditors for 10 working days while a company tries to secure a rescue deal.

Potential administrators lined up this time around include KPMG, the advisory firm that handled a restructure of Debenhams last May.

A spokesman for the company said: “Like all retailers, Debenhams is making contingency plans reflecting the extraordinary current circumstances. Our owners and lenders remain highly supportive and whatever actions we may take will be with a view to protecting the business during the current situation.

They added: “While our stores remain closed in line with government guidance, and the majority of our store-facing colleagues have been furloughed, our website continues to trade and we are accepting customer orders, gift cards and returns.”

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

The group has closed 22 stores, 19 of which shut in January, resulting in more than 700 job losses. Another 28 of its remaining 141 stores had been lined up for permanent closure next year.

Since the coronavirus lockdown Debenhams, which has more than £600m of debt, has written to landlords asking for a five-month rent holiday and reportedly asked suppliers for a 31-day delay to some payments as it seeks to conserve cash.

One insider told Sky News, which first reported the retailer’s plan, that there was a realistic prospect that Debenham’s clothing suppliers would take legal action against the company for deferring invoice payments during the lockdown.

Any collapse into administration could pave the way for Mike Ashley’s Frasers Group, formerly known as Sports Direct, to revive its interest in Debenhams.

The department store’s CVA plan was subject to a legal challenge amid pressure from Ashley, whose retail group’s investment of £150m was wiped out when Debenhams went into administration. He was keen to combine the department store firm with his House of Fraser chain.

Debenhams is one of many retailers in financial difficulties because of the coronavirus shutdown. Richard Hyman, an independent retail analyst, said it was likely to be the first of many fashion chains in trouble because of an oversupply in the market, as well as the knock to sales from Covid-19.

“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.”

Even before the pandemic, British department stores had been in difficulty, with shoppers shifting to buying online or spending on experiences such as holidays, digital services and takeaways, and firms struggling with rising costs, including business rates and staff pay.

The department chain Beales closed its 23 stores after falling into administration in January, while House of Fraser had shut at least seven of its 59 branches before the government shutdown was announced.

John Lewis has also said it is considering permanently closing outlets after profits at its department stores plunged by 65% to £40m.