Monday 6 April 2020 3:35 pm

Debenhams calls in administrators to avoid legal claims

Debenhams has filed a notice of intention to appoint administrators in a bid to avoid legal action from creditors amid the coronavirus pandemic.

The embattled department store chain said it has hired FRP Advisory as it prepares to enter a “light touch” administration, which will be the second time it has appointed administrators in less than 12 months.

Under the plans, the existing management team stay on under the direct control of the administrators.

Read more: Arcadia and Debenhams eye drastic measures as coronavirus pummels retailers

Debenhams this morning said the move will “protect Debenhams from the threat of legal action that could have the effect of pushing the business into liquidation” while its stores are closed due to coronavirus.

It said it is making preparations to resume trading once government restrictions are lifted.

All 142 Debenhams department stores are currently closed due to the government’s coronavirus lockdown, with the majority of employees being paid under the job retention scheme.

Payments to suppliers who continue to provide goods and services during the administration will remain unaffected and be paid to terms, the retailer said today.

Debenhams chief executive Stefaan Vansteenkiste said: “These are unprecedented circumstances and we have taken this step to protect our business, our employees, and other important stakeholders, so that we are in a position to resume trading from our stores when Government restrictions are lifted.  

Read more: Shareholders may push Debenhams into administration

“We are working with a group of highly supportive owners and lenders and anticipate that additional funding will be made available to bridge us through the current crisis period.

“With their support and working with other key stakeholders, including landlords, pension trustees and business partners, we are striving to protect jobs and reopen as many Debenhams stores for trading as we can, as soon as this is possible.”

Analysts pointed out that the department store chain had been facing financial difficulties for some time, and had been tipped over the edge by the coronavirus outbreak.

Alan Lockey, head of the RSA Future Work Centre, said: “Debenham’s going into administration highlights an underlying weakness in our economy.

Read more: Coronavirus: Debenhams seeks landlord support for new restructuring plan

“The furloughing of thousands of workers doesn’t appear to have made the business more resilient to this crisis, and those workers now face a period of profound uncertainty about whether they’ll be coming back to a job when this is all over.”

“The decision to place the business in administration will provide some protection and help to hold off creditors for the time being,” Simon Underwood, business recovery partner at accountancy firm Menzies, added.

“This will effectively buy the retailer some time, so more permanent decisions about how to proceed with the current restructuring plan can be made once the trading outlook becomes clearer.”