Poundland has secured another 10 days to try and find a rescue deal before the chain collapses into administration.
The budget retailer originally filed a notice of intention to appoint administrators at the end of October, giving it 10 working days to find a rescue deal. This was due to expire at midnight tonight, however CityAM reports that Poundland has filed a second notice of administration, giving its owners Gordon Brothers more time to find a buyer.
The breathing space comes as Gordon Brothers faces political pressure to find a rescue deal for the business and save more than 11,000 jobs. The American investment firm was subjected to two hours of questioning by MPs at a closed-door meeting of the Business & Trade Select committee on 11 November. MPs are said to have expressed concerns that Gordon Brothers had taken “millions out of the business” despite it being on a “knife’s edge”.
The comments from the committee’s chair, Liam Byrne MP, after the meeting suggest it did little to ease those concerns. He said: “After extensive cross-examination this afternoon, I’m deeply concerned that Gordon Brothers behaviour may have jeopardised thousands of jobs on Britain’s high street.
“Gordon Brothers refused to say it will prioritise saving jobs over and above its own financial returns.”
However, he added that the prospect of a good outcome was higher “thanks to the focus on the business of the last week.”
Management are fighting for the business
The committee heard from Poundland’s management team, led by managing director Barry Williams, who has been battling to save the business. The management team pointed to Poundland’s sales growth of more than 3% over the last year, despite difficult trading conditions, arguing that this means the business is viable. However, Gordon Brothers argued that Poundland remains “challenged and vulnerable to any potential downturn in future trading”.
Gordon Brothers is understood to believe that a break-up of the chain could generate higher recoveries than a sale of the business as a going concern. If Poundland enters administration, Gordon Brothers would become a creditor in respect of the £30m shareholder loan it acquired with the business. Any money realised from the sale of stock and other assets would form part of the administration estate, from which creditors may recover funds according to the insolvency process.
This means that, in addition to job losses as a result of the shops closing, suppliers that provided goods on credit ahead of Christmas could also face uncertainty over whether they would be paid in full.
Gordon Brothers rejected an initial offer for the whole business from Martin Property Group because the offer was lower than the £30 million shareholder loan, with just £7 million to be paid upfront, according to reporting in the Guardian.
An offer from Xyra group, a finance company, is also said to be on the table. B&M and The Range are among companies that have expressed an interest in taking on some of Poundland’s estate in the event of a breakup.
What happens next?
The High Court approved a second notice of intention to appoint administrators (filing via AlixPartners) this morning (12 November), giving Poundland a further 10 working days of grace from creditors. Gordon Brothers has also released £10 million in funds to allow Poundland to secure more stock and keep trading.
In a statement reported by the Guardian, Gordon Brothers said it was in discussions with three parties about a sale of the whole business. The firm added that “our preference remains a sale of the whole company” and said it was “working to secure a credible plan that delivers certainty, preserves value and protects as many jobs as possible.”
For now, Poundland’s future remains in the balance. With fresh funding in place and buyers still circling, the race is now on to secure a rescue deal before the administration clock starts ticking again.
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