The owner of the B&Q DIY retailer is to place its loss-making Irish business into a form of bankruptcy protection in a last-ditch attempt to force the chain's landlords to the negotiating table.
I can reveal that Kingfisher (LSE: KGF.L - news) , one of Britain's biggest retail groups, has filed today in the Irish courts to place its nine stores in the country into examinership, a rough equivalent of the UK's administration procedure.
The news of Kingfisher's decision comes two days after the country's central bank warned that the Irish economy would grow more slowly than previously forecast as it recovers from its worst-ever debt crisis.
PricewaterhouseCoopers, the accountancy firm, is understood to have been appointed to oversee the examinership process, which provides troubled companies with an opportunity to restructure themselves.
The decision by Kingfisher's management, led by chief executive Ian Cheshire, will be interpreted as an attempt to play hardball with the landlords of B&Q's Irish stores.
Sources close to Kingfisher accused landlords of refusing to enter into negotiations over the chain's rent agreements despite a 25% slump in sales since the peak of the Irish economic boom.
The sources said it was likely that four of the nine B&Q stores would close, although the plans would be subject to the scrutiny of the examiner. Nearly 700 people work for the company in Ireland (OTC BB: IRLD - news) , with about 200 jobs at risk from the four store closures.
Under Irish company law, the examiner has the power to enforce changes to commercial contracts held by businesses, which may entail a bruising showdown between Kingfisher and its Irish landlords.
The Irish chain was profitable between 2007 and 2009 but has racked up millions of pounds in losses since then as the country's economy has struggled. Kingfisher opened the first B&Q in Ireland in 2002.
Insiders said that Kingfisher had no plans to leave Ireland and that the company remained focused on building "a sustainable business". They stressed that executives had attempted to pursue other routes to turning its performance around, including cutting costs and reducing staff hours.
Kingfisher declined to comment on Thursday.
Its decision to file for insolvency protection is unlikely to be announced to the London stock exchange (LSE: LSE.L - news) because the Irish business represents such a small proportion of the group's overall sales. The turnover of B&Q Ireland is understood to be about £80m, against overall group sales of approximately £11bn.
Ireland is not the only country where Kingfisher's sales have been adversely affected by weak economic conditions. In November, the company reported that the environment in Britain – by far its biggest market – and France had also affected the performance of its DIY shops.