Edinburgh Woollen Mill: Why is the retailer filing to appoint administrators?

Edinburgh Woollen Mill Group (EWM) has become the latest in a rapidly-growing list of retailers to look towards a major restructuring after feeling the impact of the coronavirus pandemic.

It told staff on Friday that it has filed a notice of intent to appoint administrators to allow insolvency specialists to run the rule over the business.

The company is a mainstay on British high streets and also runs a raft of other retail brands, including Peacocks and Jaeger, which it has acquired over the past 10 years after their own previous financial difficulties.

High street footfall was already under pressure at the start of the year as shoppers moved online, but restrictions in the face of the pandemic have proved a heavy blow to many retailers.

Here we answer key questions over what EWM’s actions mean and what led to this situation:

What does filing a notice to appoint administrators mean?

On Friday, the group filed its notice to appoint administrators at the High Court.

It said it will help to protect it from creditors who could potentially force the business into administration themselves through legal action.

The notice of intention helps businesses by temporarily halting existing or pending creditor action, by setting up a moratorium that protects them.

The moratorium period is only 10 days but usually gives sufficient time to manoeuvre a company away from the immediate threat of liquidation.

Steve Simpson, chief executive of the group, said the move will provide it with “a short breathing space to assess options” which will include a potential sale.

How are workers and stores likely to be affected?

The company said it could be sold, or see parts sold, as well as undergo a “some significant restructuring”.

Mr Simpson said “there will inevitably be significant cuts and closures” as a result of the move.

Nevertheless, all stores will continue trading and further details will be announced in due course.

Is this new and how does it differ from rivals’ actions?

The action of filing a notice to appoint administrators is common and is the first step towards a restructuring or allowing the company to be sold out of administration.

EWM’s announcement strikes a similar note to department store chain Debenhams, which filed its notice at the start of April after first being affected by the pandemic.

Similarly, it said the move would help it ward off legal action from creditors as it reviewed options to secure its long-term future.

A week after filing its notice, Debenhams revealed plans to shut seven UK stores, with the loss of 422 jobs, and said its Irish business, which had 11 stores and 1,400 staff, would cease trading as part of its restructuring.

A number of other retailers, including Cath Kidston, Oasis Warehouse and Laura Ashley have tumbled into administration in recent months, resulting in a variety of restructurings, which included selling assets and pre-pack rescue deals.

Why is this happening now?

EWM said the move was in response to “harsh trading conditions” in the face of the pandemic, which caused it to shut all its stores from March.

It said the current background of a second wave of the pandemic and local lockdown restriction has now caused its recovery plans to unravel.

Alongside this, the group said that it has been hit hard by allegations, which it denies, related to Bangladesh-based garment suppliers.

The company dismissed claims that it failed to pay some of these suppliers in an attempt to cut costs for clothes they were unlikely to sell.

It is understood that the accusations have led to restrictions on the company’s credit insurance.

Has the company got a history of insolvency?

The company was first founded in 1946, but was taken over by current owner, retail magnate Philip Day, in 2002.

Under his ownership, the company has expanded by acquiring a raft of troubled brands out of insolvency.

In 2011, the company bought ladies fashion brand Jane Norman out of administration.

Three years later, the company slipped into insolvency again and was bought back by EWM in a pre-pack administration. However, the brand was shut down in 2018 after its fortunes failed to reverse.

In 2012, the retail group also bought Peacocks, one of its largest brands, out of administration.

More recently, the group also bought high street brands Austin Reed and Jaeger after they faced financial troubles.

Last year, the company’s Bonmarche brand tumbled into administration but was swiftly bought back in another pre-pack deal.