Duff & Phelps appointed to administration of Oddbins

06 February 2019 Consultancy.uk

The business behind a chain of UK off licences has fallen into administration, appointing consulting firm Duff & Phelps to oversee proceedings. The chain is the latest in a succession of high street casualties which has spilled into 2019, putting around 500 jobs at risk.

While the UK economy continues to languish in a sustained period of slow growth, the alcohol industry is one of the few consumer sectors in the country that could genuinely be said to be booming. Despite a succession of high-street closures and a floundering casual dining scene, adult beverage sales are at historic highs. With levels of excessive drinking having risen in Britain amid a sustained period of economic and social uncertainty, off licenses in particular have enjoyed boosted balance sheets. Excessive drinking alone adds £7 billion to their collective revenues, but with fewer of the overheads of a traditional pub.

In spite of this the UK alcohol industry has seen a number of its own collapses in recent months. In mid-2018, rising costs and accounting discrepancies led to the downfall of UK off licence owner Conviviality. A string of profit warnings and the revelation of a massive multi-million tax bill were ultimately what did for the firm – forcing the resignation of Chief Executive Dianna Hunter, while shareholders rapidly lost faith in the owner of Bargain Booze, Select Convenience, WS Retail and Wine Rack.Duff & Phelps appointed to administration of Oddbins

Now, the group which owns UK off licence chain Oddbins has gone into administration, putting at risk 500 jobs. The company trades under a number of other names: Oddies, Simply Drinks, Simply Food & Drinks, Shop2Go and Booze Buster; this is the second administration which the group has faced in eight years. European Food Brokers, a West Midlands-based company owned by entrepreneur Raj Chatha and his family, has owned Oddbins since its previous administration in 2011.

Due to the recurrence of the company’s financial challenges, if a buyer cannot be found it is therefore likely the jobs will be lost in a liquidation of the company’s assets, which include 101 stores across Britain. Restructuring specialist Duff & Phelps has been appointed to look for a new owner, citing weak consumer confidence as the main cause of Oddbins’ collapse.

Joint administrator Phil Duffy remarked, “The continued decline in consumer spending, pointing to a squeeze on household finances, combined with rising living and national wages have put increased pressure on retailers’ bottom lines. As wages struggle to keep up with the pace of inflation, and continued, deepening unease and uncertainty over Brexit, means consumers are cutting back on spending. Add into that mix rising business rates and rents, and traditional bricks-and-mortar retailers are undoubtedly feeling the strain.”

A number of other alcohol-related businesses have fallen into administration in the last year. GinFestival.com was unable to successfully harness the power of the gin boom in the UK, as was the Belfast-based Botl.

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Debenhams administrator handed legal threat from Sports Direct

24 April 2019 Consultancy.uk

Earlier in April 2019, the long-suffering high street entity of Debenhams finally collapsed into a pre-pack administration, wiping out equity for shareholders including Sports Direct. Now, Mike Ashley, the controversial owner of Sports Direct, has threatened legal action to remove FTI Consulting from its role as Debenhams’ administrators, following the obliteration of his stock in the company.

As the retail sector in the UK continues to endure a torrid period, British retail stalwart Debenhams endured a spectacular fall from grace. The high street ever-present was founded in the early 19th century, with a single store in London, before expanding to 178 locations across the UK, Ireland and Denmark. However, following a string of profit warnings and several rounds of lay-offs, the company engaged advisors from Big Four firm KPMG to consider its options in the Autumn of 2018.

At the time, Debenhams Chairman Sir Ian Cheshire insisted that the chain was not heading for insolvency, or that it was actively embarking on a company voluntary agreement (CVA). Nevertheless, Debenhams fell into administration in Spring 2019. The news saw Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting appointed as joint administrators, immediately selling the retailer to a newly incorporated company controlled by secured lenders.

Debenhams administrator handed legal threat from Sports Direct

The pre-pack administration deal meant Debenhams was able to access significant additional funding, preserving 165 of its stores, though plans to close around 50 under-performing stores in the next three to five years remain in place. At the same time, the deal maintained its commercial relationships with suppliers, employees and pension holders. However, it also effectively led all of Debenhams’ previous shareholders – including the retail magnate Mike Ashley – to lose their equity.

Ashley’s Sports Direct firm had increased its stake in the department store chain in 2018, but stopped just short of the 30% stake which would require it to put in a formal offer to fully acquire the business. The transaction fuelled speculation that Ashley was waiting for the opportune time to acquire Debenhams, particularly in the wake of his swoop for House of Fraser. Ashley’s deal there enabled Sports Direct to buy the firm out of administration in a pre-pack deal, allowing the new ownership to controversially wash its hands of the company’s pension scheme in the process.

While some believed this was Ashley’s intent for Debenhams, FTI’s decision to sell the store to its creditors has instead resulted in a sizeable loss for Ashley. The hit of around £150 million from his loss in Debenhams comes after an analysis by The Sunday Telegraph suggested the tycoon had accrued “a sprawling web of stakes” in rival companies, and that he may be nursing losses of more than £500 million.

Bad press

Ashley – who recently lost a complaint ruling by British press regulator Ipso allowing the Times to note that he shared many characteristics with North Korean dictator Kim Jong-un – has been outspoken in his contempt for FTI since the news broke of Debenhams’ sale. The Sports Direct CEO has called for the resignation of FTI from its role as administrator, after his stake in the department store chain was wiped out. The Guardian stated that a letter to FTI saw Sports Direct’s lawyers even threaten legal action to remove the advisory firm as administrators because of a conflict of interests.

According to the reports, the document claimed, “[Sports Direct] will do everything available to it to unwind the damage caused to the company and other stakeholders (including large and small shareholders) by the events of today including but not limited to challenging the appointment [of FTI as administrators] and all consequences of it.”

The letter allegedly claims that FTI had been involved with Debenhams since the second week of February, and had engaged with the group’s lenders. The legal team reportedly suggested that this would consistute a conflict of interest, because FTI sold the retailer’s operating companies to the same lenders via a pre-pack administration.

This comes weeks after Sports Direct was itself accused of becoming overly cosy with a professional services firm, which has seen its auditor Grant Thornton placed under scrutiny for its continued role with the firm. In 2018, it was reported that Grant Thornton was set to stand aside from the role due to competition rules. It had held the role since before Sports Direct floated on the London Stock Exchange in 2007, while Phil Westerman, the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, had himself undertaken the work for five years. 

Neither situation is understood to have changed, leading to the questioning of the independence of Grant Thornton’s auditing work with Sports Direct. Such is the level of bad press surrounding the retailer, that the Big Four of the accounting and advisory world – wary of incurring a new scandal of their own – are said to have ruled out taking the contract over.