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Debenhams crisis: suppliers have options to consider

View profile for Tim Francis
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Despite reassurances from Debenhams’ chairman and CEO, suppliers of the department store will be understandably concerned by the recent press coverage of its woes. After all, it is common for suppliers of large retailers to suffer when those retailers get into financial difficulty. However, there are steps they can take to protect themselves in these circumstances.

Debenhams suppliers would be forgiven for being alarmed by the recent enlisting of restructuring specialist KPMG and rumours that another high profile company voluntary arrangement (CVA) is on the cards. The chairman’s attempts on radio to ease concerns by likening the situation to nosy neighbours seeing someone in a suit entering their house, assuming he was an undertaker and everyone looking forward to the funeral, may have a ring of truth in it. However, perhaps a more accurate analogy may be likening neighbours coming to that conclusion when the suited person happens to arrive by ambulance with blaring siren and flashing lights – i.e. there is a serious problem but hopefully a full recovery will be made.

CVAs have certainly increased in popularity, mainly because major retailers have been able to force suppliers - and landlords in particular – into reductions in (rental) costs.

The press coverage for landlords caught up in CVAs has been vast and landlords are looking for legal mechanisms to fight back. For other suppliers, a CVA or other insolvency process such as administration can be devastating, resulting in loss for non-payment for its supplies and, for smaller suppliers heavily dependent on large contracts with major retailers, this can sound their death knell.

But suppliers are not powerless to defend themselves and should take advantage of the retailer's need to keep shelves stocked to maintain consumer confidence. Options for suppliers to explore include revisiting their terms of supply, such as insisting on payment on delivery, deposits on orders or ensuring that there are clear and binding retention of title provisions, even when the prevailing terms are (as is often the case), drawn heavily in favour of the retailer.

Francis Wilks & Jones specialises in insolvency and restructuring and we have experience in helping suppliers in these situations. Contact Tim Francis, Head of Insolvency on 020 7841 0390 or email Tim.Francis@fwj.co.uk for an initial discussion.