An interim examiner has been appointed by the High Court to the department store chain, Debenhams Retail (Ireland) Ltd (DRIL), which operates 11 stores in the Republic. The move affects the jobs of 2,265 people, of whom 1,415 are directly employed by the business. Some 500 staff people work in concessions within Debenhams stores, with a further 320 are employed in cosmetics.
The application was brought as a result of DRIL suffering consistent losses since the onset of the recession in 2007, and finally triggered by the withdrawal of of support on Wednesday this week of its UK parent company, Debenhams Retail plc, the court heard.
The recession “has been bad for Debenhams” and the losses suggest the recovery in the retail sector here is “somewhat exaggerated”, Rossa Fanning BL, for DRIL, said.
While revenue has begun to stabilise in the last two years and show signs of growth, the total revenue in the financial year 2015 was €167 million, 22 per cent below the 2007 figure.
Debenhams Retail (Ireland) Ltd is considered to have a reasonable prospect of survival, in whole or in part, once certain conditions are met, including approval of a survival scheme which would involve reducing costs, including staff and rent costs, counsel said. Concessionaires and staff will continue to be paid throughout the period of court protection and all vouchers, gift cards and loyalty points will be honoured, he stressed.
Clerys
His client was conscious of the public controversy that arose following the sale of Dublin department store Clerys and the effects on the latter’s concessionaires and staff and DRIL was anxious to assure staff, concessionaires and customers it will be “business as usual” during this examinership.
Mr Justice Brian McGovern said he was satisfied to grant court protection and to appoint Kieran Wallace of KPMG as interim examiner.
He also made directions for advertisement of the petition and returned the matter to May 25th.
Earlier, Mr Fanning said the company operates 11 stores in the State — four in Dublin, two in Cork, and others in Galway, Limerick, Newbridge, Tralee and Waterford. It incurred losses in five of the last six years and is insolvent both on a balnce sheet basis and on its ability to pay debts as they fall due, the company’s petition stated. It incurred losses of some €22.6 million in the last three years and continues to be loss-making.
It recorded increases in revenues of 1 and 2 per cent respectively in the financial years ending August 2014 and 2015 but also reported losses in both years due to its fixed cost base.
Rents
Store rents and staff costs account respectively for 15 and 22 per cent of revenue. Payroll costs were €36 million annually and rent costs for the 11 stores were €25 million annually.
In its petition, the company said some payroll reductions were achieved after consultation with staff trade unions but management believes there is “further scope” to reduce staff costs.
The company has no bank debt as it is supported by its parent group but Debenham plc notified DRI this week it would no longer support the Irish operation on the current basis. DRIL owes the parent company some €46 million and that is “unsustainable”, counsel said.
An independent expert, in a report to the court, expressed the view the company has a reasonable prospect of survival once certain conditions, including court protection and approval of a survival scheme, are met. That would involve reducing costs, including rent costs which, counsel said, were “vastly” above market rates. The only alternative to examinership was liquidation with an estimated deficit of €264 million, the court was told.
Confidence
An interim examiner woud ensure greater confidence among customers, employees and creditors and ensure a scheme of arrangement would be implemented as soon as possible, it was also stated.
It is envisaged that all 11 stores in the State will continue to trade during examinership, which will last up to 100 days, the company said. Meanwhile, all prepaid goods and services, as well as gift vouchers and credit notes will be honoured, it added.
"The directors of Debenhams Retail (Ireland) Ltd will work hard to secure the long term future of the business in Ireland, " said John Bebbington, director of the company.
“A key element of the examinership would be to protect as many jobs as possible. We believe this will be in the best long term interests of all our stakeholders”
