Debenhams collapses into administration

Wed, 10 Apr 2019 | ADMINISTRATION



Thought to be the largest department store in the UK, Debenhams has entered administration in the face of crippling debt and fierce competition on the high street.

Entering a pre-pack administration, the business has been sold to its lenders and has passed on control, and now have access to £200 million worth of emergency funds.

Business advisory firm FTI Consulting has been called in to handle the administration process, with the administrators stating: “The group has been sold for a price which in our opinion is the best price reasonably obtainable at the time of sale.”

As a result of this transaction, Debenhams will be “immediately marketed for onward sale” to salvage funds in order to pay off the company’s debts and cover its pension liabilities.

This action comes in response to Debenhams rejected a £200 million rescue deal from Sports Direct’s Mike Ashley, who also wanted to take over as chief executive.

However, under the company voluntary agreement (CVA), its debts will be reduced and will undergo a restructuring programme. However, roughly 50 stores are earmarked for closure, but none before 2020.

In an attempt to further cut costs, the company will aim to renegotiate rent reductions with its landlords, which insolvency practitioner David Ereira from Paul Hastings law firm says may be met with resistance.

Despite the complications, Debenhams will continue its trading operations as usual. However, Richard Lim from Retail Economics has said: “Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.

“Put simply, the business has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”

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