House of Fraser’s concession partner Ehab Shouly is considering legal action against the company’s administrator Ernst & Young (EY).
Shouly, owner and co-founder of The Tea Terrace, which operates three cafes within House of Fraser stores, claims he is owed over £300,000 from House of Fraser, equating to two month’s worth of sales.
He argues that EY’s decision to classify that money as unsecured debt means The Tea Terrace goes to the back of the line for any payouts that are made on behalf of House of Fraser.
Under the Insolvency Law, unsecured creditors are interpreted as creditors who do not have security for the debt (owed to them by the insolvent company).
While The Tea Terrace sold directly to customers, House of Fraser kept the money for 55 days before paying it back to Shouly, minus its commission.
Shouly contacted EY in August to contest the classification of the money owed to him, but EY are yet to respond to his questions.
The owner argues that concessions such as The Tea Terrace and the customers whose orders were never delivered, should be the first in line to be repaid.
Shouly, who has sought legal advice, called for the government’s Insolvency Service to investigate the House of Fraser collapse.
“We strongly believe that it should be the court that should be interpreting the law on company insolvency, and not the administrators Ernst & Young (EY). We are therefore considering the option of mounting a legal challenge against EY’s unilateral classification of our debt as unsecured debt,” Shouly said in a statement to the press.
He added that due to the precarious situation of many retailers, the interpretation of the Insolvency Law at this time is crucial “to ensure that the law protects every company and every individual affected by these insolvencies, and not just the banks who had chosen to take the risk of lending money to the insolvent firm” – in this case, House of Fraser.
Sports Direct bought House of Fraser out of administration in August, but is under no obligation to pay back any of the debt the department store owes.
Shouly said that Sports Direct’s treatment of House of Fraser’s partners and concessions had been “fantastic”, pointing out that the new owner has reduced the time it takes to pay partners from 55 days to just 10 days.
“This was a commendable gesture and shows that Mike Ashley genuinely means what he says when he says he wants to support HoF’s business partners”, Shouly added.
“We want to work with every company and every individual who has lost money as a result of the collapse of House of Fraser. Together we have more resources to use in our legal challenge and together we have a louder voice. The best case scenario is that the unsecured creditor status is removed, and the banks’ secured creditor status is also removed.”