17,000 jobs at risk as House of Fraser falls into administration

House of Fraser pension

House of Fraser has collapsed into administration, placing around 17,000 jobs at risk in what could potentially become the biggest high street casualty since the fall of BHS.

This morning, House of Fraser said that “discussions with interested investors and its main secured creditors have not concluded in a solvent solution”, forcing the retailer to call in administrators.

It comes after talks with potential investors – including Sports Direct’s Mike Ashley, who already has an 11 per cent stake in the business, and Edinburgh Woollen Mill Group’s Philip Day – failed to lead to a successful rescue deal.

Auditing firm Ernst & Young (EY) is poised to be selected as House of Fraser’s administrators.

While the 17,000 employees across the company – 11,500 of which are concession staff – now face uncertainty, the department store could still have some parts of it salvaged in the form of a pre-pack administration.

A pre-pack administration is a form of insolvency that allows a new buyer to cherry pick the best assets of a business and also leave behind liabilities, such as pension schemes.

In an announcement to the Luxembourg Stock Exchange, House of Fraser said “significant progress has been made” in reaching a sale of its business and assets.

The retailer also stressed that its offices and all of its stores will continue to trade as per normal as it looks to reach a deal.

EY will continue discussions with interested parties in the hope of reaching a deal “shortly after their appointment”.

Chief executive Alex Williamson said: “We are hopeful that the current negotiations will shortly be concluded.

“An acquisition of the 169-year-old retail business will see House of Fraser regain stability, certainty and financial strength.”

The news comes amid a tumultuous period for House of Fraser, which has been scrambling to stay afloat for the past six months – and much more so for the past two weeks when a major Chinese investor pulled out of a CVA deal.

On Tuesday, City AM revealed that the department store had rejected an offer from Paul McKie to take on the 31 stores set for closure in January 2019 as part of its CVA that was approved by creditors in June.

McKie was understood to have offered between £30,000 and £50,000 per store for the leases and rent obligations from September.

Last weekend, House of Fraser settled a legal dispute with landlords who sought to challenge its CVA, which, alongside the 31 of its 59 stores earmarked for closure, also featured rents reductions on 10 stores that will remain open, a relocation of offices and 6000 job cuts.

It was thought that the result of the legal challenge would have paved way for the department store to secure the new funding it urgently needs.

Chinese investment firm C.banner, also the owner of toy retailer Hamleys, had also promised an investment of £70 million for House of Fraser, which was conditional on the implementation of its CVA.

Additionally, House of Fraser’s majority owner Nanjing Cenbest had signed a memorandum of understanding that C.banner would purchase 51 per cent stake in the department store after the CVA process was complete.

However, C.banner withdrew its planned cash injection in late July, just days after it said it would delay it until October due to the landlords’ legal action – which was initially filed on July 20.

C.banner’s withdrawal also came a day after influential credit ratings agency Moody’s judged House of Fraser to be in technical default on its loans, downgrading it from the “very high risk” rating it received in December.

House of Fraser urgently needed £40 million of new funding by August 20, as well as £25 million to pay for its quarterly rent bill in late September.

It also needed further funds to make sure there is enough stock for the upcoming Christmas trading period.

“In the two weeks since the Cenbest and C.Banner transaction ceased, the directors have brought forward a number of potential buyers and the group’s financial advisers have run a comprehensive M&A process to identify and then develop other third party interest that has culminated in the senior secured creditors leading negotiations with parties at a critical pace,” Williamson said.

House of Fraser chairman Frank Slevin said: “This has been an extraordinarily challenging six months in which the business has delivered so many critical elements of the turnaround plan.

“Despite the very recent termination of the transaction between Cenbest and C.Banner, I am confident House of Fraser is close to securing its future.”

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