Debenhams announced today (Friday April 26) details of two proposed Company Voluntary Arrangements (CVA): one relating to Debenhams Retail Limited, the main trading entity (69 stores); and one relating to Debenhams Properties Limited (99 stores).
A CVA is a legal process that allows a company to reach a compromise or settlement agreement with some or all of its creditors ie those to whom money is owed. The majority of retail CVAs are structured to close stores, reduce rents and change lease terms with their landlords.
Administrators were appointed to Debenhams plc on April 9. The underlying group operating companies are unaffected and all businesses are continuing to trade as normal.
Terry Duddy, executive chairman of Debenhams, said: “The issues facing the UK high street are very well known. Debenhams has a clear strategy and a bright future, but in order for the business to prosper, we need to restructure the group’s store portfolio and its balance sheet, which are not appropriate for today’s much changed retail environment. Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future.”
The department store group said the CVA proposals ‘provide a mechanism to restructure the store estate in line with the plan outlined by management in October 2018 to reduce the current 166 UK store portfolio by closing around 50 stores. The first stage of that programme proposes up to 22 store closures in 2020.’
The key terms of the CVA are all related to the group’s sites. All Debenhams stores are proposed to remain open during 2019, including through Christmas peak trading, but a total of 22 stores are expected to close in 2020. They are: Altrincham, Ashford, Birmingham Fort, Canterbury, Chatham, Eastbourne, Folkestone, Great Yarmouth, Guildford, Kirkcaldy, Orpington, Slough, Southport, Southsea, Staines, Stockton, Walton, Wandsworth, Welwyn Garden City, Wimbledon, Witney and Wolverhampton.
About 1,200 people work in the stores affected and Debenhams said ‘they have been informed of our plans this morning – we will try to redeploy as many as possible’.
Further store closures will be confirmed in due course, the final number being dependent on ‘future trading performance, discussions with landlords regarding changes in lease terms and rental levels, and with local authorities regarding business rates’. The 11 stores in the Republic of Ireland are not affected by the CVA proposal.
Debenhams has already confirmed the closure of its Lodge Farm warehouse and noted that its three continuing warehouse facilities could be consolidated further as a result of this process.
Assuming the CVA becomes effective, a fund of a maximum value of £25 million will be available for those creditors compromised by the CVA to participate in future growth of the UK business. To become effective, each CVA proposal requires 75% or more in value of the creditors voting at the creditors’ meeting on the resolutions to approve the CVA and for more than 50% of the total value of the unconnected creditors to vote in favour. The meeting will be held on May 9. The proposed nominees of the CVA are Jim Tucker and Ed Boyle from KPMG’s restructuring practice.