New administration filing: is Debenhams about to act?

By

Sandra Halliday

Published
Apr 5, 2020

Debenhams is believed to be preparing a second administration filing and has missed a pension top-up payment as the coronavirus pandemic continues to devastate the UK retail sector. 

The 242-year-old department store chain employs around 22,000 people. It's believed that KPMG will be handling the process, although Debenhams hasn't shared any details.

However, a spokesperson has said that "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.”

It also missed its April top-up payment to address its pension fund deficit, The Telegraph reported. But a spokesperson has said it isn't trying to dump its pension liabilities.

If it does file for administration, a pre-pack administration is expected with the current owners (a consortium that gained control last year after its previous filing), expected to buy it back. A source “familiar with the company's current thinking” told the BBC that such a scenario would see the current owners taking the business out of administration once the UK lockdown ends with talks going on for them to inject more funding into the chain and for it to continue its current turnaround drive.

It would be a huge disappointment for management at the company, which last year thought it had put its problems behind it after its administration filing that saw the business falling under the ownership of its major lenders.

A few days ago the company put most of its workforce on furlough after it was forced to close its 142 UK department stores. That means the state will be responsible for paying those workers with the UK government prepared to pay 80% of salaries up to a maximum of £2,500 a month.

But if the administration approach is to help in the long term, some analysts say the firm needs a big cash injection. Sofie Willmott, Lead Analyst at GlobalData said the administration filing will “tide it over for now, freeing it from debts,” but without the cash, it could just "prolong the inevitable". 

She also thinks its needs to find a stronger USP. “The department store chain was already in trouble before the Covid-19 pandemic hit and the sharp shift in consumer shopping habits will only speed up inevitable changes in the UK market,” she said. “Weaker retailers without a unique selling point will be weeded out, with many unable to survive the year."