Insurers must pay out quickly on claims to help small firms, says FCA
Debenhams announced it will file for administration as figures showed the extent to which Britain’s economy is suffering during the coronavirus pandemic.
The struggling department store chain, which employs 22,000 people, will bring in administrators to try to protect itself from legal action that could bring about the company’s collapse.
Debenhams faced being chased by suppliers and other creditors who have not been paid as a result of the coronavirus pandemic. Debenhams said it was preparing for all of its stores to reopen once the coronavirus lockdown conditions are eased by the government.
The company said in a statement: “This move will protect Debenhams from the threat of legal action that could have the effect of pushing the business into liquidation while its 142 UK stores remain closed in line with the government’s current advice regarding the covid-19 pandemic.”
It came as data showed the increasingly heavy economic toll caused by coronavirus, with construction slumping to its worst performance since the financial crisis, new car registrations plunging by more than 40 per cent and consumer confidence dropping at its fastest pace in more than four decades.
Some 203,000 fewer new cars were registered in March than during the same month in 2019, according to the Society of Motor Manufacturers and Traders. A separate report from Auto Analysis and Global Data forecast that manufacturers will lose out on $100bn (£82bn) in car sales as their factories lie dormant across Europe and North America.
Meanwhile, the UK construction sector suffered its largest job cuts since 2010 after measures to stop the spread of coronavirus halted work and caused a slump in new orders.
The closely watched IHS Markit/Chartered Institute of Procurement and Supply (CIPS) construction purchasing managers’ index dropped to 39.3 for March, from 52.6 in February. Analysts had forecast a reading of 44, with anything below 50 indicating a contraction in activity.
Duncan Brock, the group director at the CIPS, said: “With no upturn in sight, and with the fastest level of lay-offs since September 2010, the sector is stuck in quicksand and sinking further.”
There was more bad news for retailers too after a survey showed that consumer confidence plummeted in the last two weeks of March – a period in which some 950,000 people made new benefit claims.
People were asked about changes to their personal finances, the general economy and whether they feel now is the right time to make major purchases, during interviews between 16 and 27 March.
The results produced an overall negative score in the “consumer confidence barometer” from GfK of minus 34, indicating a sharp decline in confidence of 25 points from a score of minus nine in mid-March.
Debenhams had been in trouble before the current crisis, which has seen all but essential shops close their doors. A year ago, the chain went through a restructuring process known as a pre-pack administration, which saw lenders take control and shareholders, including Mike Ashley’s Sports Direct, wiped out.
The 242-year-old company is already in the process of closing around 50 stores as it seeks to slash costs and focus on profitable sites. Of those, 22 have shut so far.
Debenhams said the new administration would be “light touch”, suggesting it would not involve further, large-scale store closures but some analysts remain sceptical.
“This is the first example of a so-called ‘light touch’ administration which has been promoted by practitioners to protect the company from hostile actions during the current crisis,” said David Ereira, a restructuring partner and insolvency expert at international law firm Paul Hastings. “Debenhams has, however, been in financial difficulty for some time now, so how long any new measures can keep it afloat remain to be seen.”
Sean Moran, an insolvency partner at law firm Shakespeare Martineau warned that other well-known names may be forced to call in the administrators.
“The government has stated its intention to facilitate cash injections and other financial assistance to businesses, recognising the imminent threat of insolvencies in many sectors,” he said. “These measures include the temporary business rates relief set out in the Budget which will benefit many smaller retailers in the short term.
“It remains to be seen how quickly the processes for accessing other funds and the payment mechanisms promised will actually materialise. Cash remains king at present and those businesses without cash or access to credit lines will have massive problems.”
Stefaan Vansteenkiste, the chief executive of Debenhams, said on Monday: “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.
“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.”