Debenhams gave year-long commitment to Irish arm in December

The British parent of retail group Debenhams, whose 11 Irish stores went into examinership yesterday, committed less than five months ago to "provide adequate support" to the Irish operation "for a period of not less than one year".

The parent company gave the commitment on December 22nd, when the audited accounts for Debenhams Retail (Ireland) were signed off. This gave the balance-sheet insolvent Irish company the ability to continue as a going concern, despite racking up losses.

The Irish operation, which has accumulated losses of more than €22 million in the past three years on annual sales of €167 million and which has net liabilities of €5 million, was put into examinership yesterday by its local board of directors.

They took the decision after the UK parent company, which took a €55 million dividend from the Irish arm in 2013, wrote to it on Wednesday to say it was withdrawing financial support.

It blamed the company’s high cost base, especially its rents and staffing costs, and said it would only be prepared to reinvest if the costs are addressed.

The interim examiner, Kieran Wallace of KPMG, is now expected to seek talks with Debenhams' landlords, including the Roche family that sold the group nine Roches Stores outlets in 2006, subsequently rebranded as Debenhams.

Above-market rents

Debenhams told the

High Court

its rents “substantially exceed” market rates and talks with its landlords to reduce the cost of its leases had failed.

The High Court has the power to repudiate leases if agreement cannot be reached with landlords, and also to approve reductions in upward-only rents. Crucially, the court can also repudiate guarantees of such leases by the parent company. Debenhams told the court its UK parent has given such guarantees.

Other retailers, including Homebase, Mothercare, Karen Millen and B&Q, have used the examinership route in recent years to reduce their upward-only rents. The 2012 examinership of Atlantic Homecare, requested by its parent the Grafton Group, was among the first to try this strategy.

The Debenhams examinership move affects the jobs of 2,265 people, of whom 1,415 are directly employed by the company. Some 500 staff work in concessions within its stores, with a further 320 employed in cosmetics.

Clerys controversy

Rossa Fanning

, for Debenhams’ Irish arm, told the court 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.

He said Debenhams Retail (Ireland) was anxious to assure staff, concessionaires and customers it will be “business as usual” during examinership.

Debenhams told the court it incurred losses in five of the past six years and is insolvent both on a balance sheet basis and on its ability to pay debts as they fall due.

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.

Store rents and staff costs account respectively for 15 and 22 per cent of revenue. Payroll costs were €36 million annually and rent costs were €25 million annually.