A Debenhams store in Nottingham. The group closed its UK stores last month in the government lockdown © PA

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Debenhams’ owners have put restructuring firms on standby as they consider putting the struggling department store group into administration for the second time in a year.

“Like all retailers, Debenhams is making contingency plans reflecting the extraordinary current circumstances,” the company said in a statement. “Our owners and lenders remain highly supportive and whatever actions we may take will be with a view to protecting the business during the current situation.”

The department store group closed its UK stores last month after the government imposed a lockdown on all non-essential retail. It has already asked its landlords for a five-month rent holiday and used the government’s furlough scheme to pay staff sent home following the closure of its stores.

It is still selling online and accepting gift cards and returns, but its ecommerce offering is under-developed. Only about a fifth of sales are made online, compared with almost half at John Lewis.

Debenhams was in difficulty even before coronavirus reduced shopper numbers and forced the government to close stores. Suppliers said the company had to discount in order to attain its Christmas sales targets and it had started work on a debt-for-equity proposal that would have imposed big losses on its bondholders.

A restructuring partner at one professional services firm said an administration proposal had been circulating “for some time” and that the department store chain was likely to be low on cash, meaning any process would be short and likely to result in the current owners retaining control. 

Another person briefed on the process said those owners, a consortium that included Silver Point Capital, Alcentra, Golden Tree and Barclays, were likely to be reluctant to inject more funding into Debenhams to help it through the coronavirus crisis if that cash was largely to end up with suppliers, landlords and other creditors.

Sky News reported that KPMG was likely to act as administrator. The firm oversaw a company voluntary arrangement at Debenhams last year, which cut rents and provided for the closure of up to 50 stores.

Debenhams and KPMG declined to comment.

FTI Consulting acted as administrator in the “pre-pack” of Debenhams last year, which took it off the stock market and handed control to the Silver Point consortium in control.

A further insolvency process is thought likely to lead to more store closures, given that administration would render existing lease agreements void. 

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