Debenhams Seeks Administration as Virus Tips Retailer Over Edge

(Bloomberg) --

Struggling U.K. retailer Debenhams Plc moved to protect itself from creditors after closing its stores because of the coronavirus.

The department-store chain filed a notice of intent to appoint administrators under U.K. insolvency procedures. The company said the goal was to avoid being pushed into liquidation as it eyes reopening after virus-related restrictions are eased.

Debenhams envisions what it described as a “light touch” administration in which the existing management remains in place, under the supervision of the administrators from FRP Advisory Group Plc.

The company was taken over by lenders last year, making it one of the U.K.’s highest-profile retail casualties as shoppers shift online. The move came after the department-store chain rejected a rescue plan from retail tycoon Mike Ashley.

Debenhams has 142 stores in the U.K. but it has been shutting some outlets as it tries to reduce its high rental costs and property taxes amid falling customer traffic and shaky consumer confidence. This month’s virus-induced lockdown has deepened its crisis. Thousands of workers have been furloughed, meaning most of their salaries are paid by the government, though the retailer has continued to sell online.

The company has joined other retailers, including Hennes & Mauritz AB and Primark, in withholding rent payments in a bid to preserve cash.

The standoff between retailers and landlords has seen some property owners threaten to issue winding-up petitions against tenants, which could trigger liquidation proceedings. It is also giving rise to fears that leveraged real estate across Europe may once again play a role in triggering a wider financial crisis within the banking sector.

Lenders ‘Supportive’

Debenhams lenders are “highly supportive” and will fund administration fees, Chief Executive Officer Stefaan Vansteenkiste said in a statement.

Retailers already operating in a highly competitive sector have been hit hard by the government-mandated store closures. The longer the lockdown persists the greater the chance more businesses could have to follow Debenham’s lead in seeking protection from creditors.

“Almost half a million businesses were in financial distress, even before the coronavirus outbreak,” said Julie Palmer, partner at restructuring firm Begbies Traynor Ltd. “There are worrying signs that this figure will jump markedly throughout 2020.”

©2020 Bloomberg L.P.