It has been reported that Debenhams, the major high street retailer, has filed for administration following the Coronavirus Lockdown. As a non-essential retailer, all of Debenhams shops have been forced to close, although it is understood it is continuing to operate online.
Administration is a legal process through which a company can seek to protect its business whilst looking for ways to achieve a more favourable outcome for stakeholders (staff, creditors and shareholders) than would be the case if the company were to be put into liquidation.
In simple terms, a liquidation requires the business to be closed and the assets to be sold off. Generally, a liquidation would result in a mere fraction of the value of the business being realised as assets are sold off on a forced sale basis.
Administration allows for a more controlled management of the business, enabling them to continue to trade whilst a longer-term plan is prepared. It is hoped that will result in a more favourable outcome for the stakeholders. Administration also has the effect of protecting the business from its creditors in the short term, as it creates a moratorium effectively preventing creditors from initiating or pursuing action against the business whilst the Administration remains in place.
It is not clear what the long-term plan for Debenhams is, or indeed their 20,000 odd workforce, the majority of whom are currently furloughed under the Coronavirus Job Retention Scheme.
Debenhams has already gone into administration within the last 12 months which resulted in 22 stores being closed with a further 28 planned to shut in 2021. The administrators will be obliged to consider the various options available to the business before notifying stakeholders of their intentions in due course.
The high street has been suffering for a number of years and the Coronavirus Pandemic is likely to significantly worsen that situation.
As well as Debenhams' workforce, landlords of their various high street stores and suppliers will also be nervously watching to see what happens next.
It is unlikely that Debenhams will be the last casualty in the current Pandemic.