By Mark Kleinman
Shareholders in Debenhams are preparing to place the 242-year-old department store chain into administration as they seek to protect the business from creditors during the COVID-19 pandemic.
Sky News has learnt that the retailer, which employs about 22,000 people, could file a notice of intention to appoint administrators as early as next week.
KPMG, the accountancy firm, is understood to be among those on standby to handle the process.
The prospective appointment would be designed to shield the company from legal claims from creditors during the coronavirus outbreak.
A firm decision to appoint administrators has, however, not been taken and it remains possible that an alternative outcome could yet emerge.
The move would come just days after Debenhams put the vast majority of its workforce on “furlough”, following the closure of its 142 stores across the UK.
Employees’ wages will now be covered for three months by the government’s Coronavirus Job Retention Scheme.
Its online operations would continue to trade during any period of insolvency, sources said on Friday.
Debenhams has hundreds of millions of pounds of inventory on order from suppliers that it no longer requires because of the UK being in lockdown and ministers’ order that all non-essential shops should shut.
One insider said there was a realistic prospect of suppliers taking legal action against the company for deferring the payment of invoices.
People close to the company pointed out, however, that the chain’s shareholders, which include the American hedge funds Silver Point Capital and GoldenTree Asset Management, remained confident that it has a viable future.
“This [appointing administrators] would not be the precursor to a planned closure,” said one.
“It would be a way of protecting the balance sheet during a period of vastly reduced revenue.”
In a statement issued to Sky News on Friday, a Debenhams spokesman 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.
“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.”
If the filing for administration does take place, it would represent another turbulent chapter in Debenhams’ recent history.
The chain’s holding company entered insolvency proceedings almost exactly a year ago following a bitter public battle with the Sports Direct tycoon Mike Ashley, whose Frasers Group had become its biggest shareholder.
It is unclear whether Mr Ashley, who is in the process of trying to sell Newcastle United FC, has any appetite to try to acquire Debenhams again.
The likeliest outcome of an administration process would be a pre-pack sale back to its current owners, with the company shed of its existing financial liabilities.
Debenhams has already written to landlords to inform them that it requires a five-month rent holiday, while this week it notified suppliers of a 31-day delay to some payments.
The department store operator, which traces its roots to 1778, has been working on a plan to permanently close 50 shops, leaving around 110 as its core estate.
Just over 20 have closed already, leaving 28 more locations to be identified.
For much of its history, Debenhams was highly profitable, becoming an established ‘anchor’ tenant on many high streets and in shopping centres around the UK.
It relisted on the London stock market in 2006 following a spell in private equity ownership that proved lucrative for CVC Capital Partners and TPG but which left its balance sheet saddled with what proved to be unsustainable debts.
Last April, it launched a Company Voluntary Arrangement to secure agreement for store closures and rent cuts.
Legal challenges to the CVA have now been overcome, prompting suggestions that it could turn to a second such .
That idea is said to have been discounted for the time being in favour of a filing for administration.
The potential decision to file for administration comes as Debenhams also seeks a new chief executive.
Sky News revealed last month that Stefaan Vansteenkiste is to step down this year, after taking over as chief executive last August.
The search could be put on hold while it undertakes the next phase of its restructuring efforts.
Mr Vansteenkiste had always been envisaged to be a temporary appointment by Debenhams’ owners.
If it survives, the chain is likely to want a new boss in place in time for the peak Christmas trading period – assuming high streets have resumed trading in the wake of the coronavirus pandemic. (Sky News)