Landlords have dropped a legal challenge against House of Fraser’s plan to possibly close more than half its stores, making it easier for the embattled department store to broker a rescue deal.
The case, which was due to be heard in Edinburgh’s court of session next week, was settled over the weekend. The terms of the agreement are not being made public but are thought to include financial compensation.
House of Fraser announced in June a controversial plan to close 31 of its 59 stores using a company voluntary arrangement (CVA), an insolvency procedure. The stores being shut, which include its Oxford Street flagship in London and others in Birmingham, Cardiff and Edinburgh, will trigger up to 6,000 job losses.
The CVA was approved by House of Fraser’s creditors but the subsequent legal challenge by landlords, who felt they were being treated unfairly, created uncertainty and contributed to the collapse of a deal struck by House of Fraser’s management with C.banner, the Hong Kong-listed firm that owns the toy store Hamleys.
Last week, C.banner said that a dive in its own share price meant its plans to raise £150m to invest in House of Fraser had been “rendered impracticable and inadvisable”. C.banner’s withdrawal left House of Fraser urgently seeking at least £50m in new funds from another source to avoid collapse. It needs cash to pay its monthly rent bills and payroll, as well as to fund the purchase of stock.
“House of Fraser can announce that the challenges by a group of its landlords to its company voluntary arrangements have been settled,” said the company. “House of Fraser is focused on concluding discussions with interested investors … and recognising the risks in and around this litigation has entered into this settlement now to remove any risk to those discussions.”
Sportswear tycoon Mike Ashley, who owns an 11% stake in House of Fraser, had been widely tipped as the most likely person to rescue the group but weekend reports suggested he had cooled on a deal. Ashley’s spokesman said on Sunday that the Newcastle United football club owner would not be issuing any comment.
Philip Day, the billionaire owner of Edinburgh Woollen Mill, Peacocks and Austin Reed, has also been named as a possible rescuer. The group is also thought to have attracted interest from Alteri Investors and Hilco which specialise in buying up troubled firms with a view to turning them round for a profit.
In a joint statement, the landlords confirmed that an agreement had been reached with the retailer: “The terms of the settlement are confidential but we can confirm that we have agreed to withdraw our legal challenge. Although we will not have our day in court, we are pleased with the outcome and hope that our landmark legal challenge sends a clear message to any other companies considering a CVA, on the importance of transparency and fair treatment for all creditors throughout a CVA process.”
