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BHS Facing Potential Administration Amid Crunch Negotiations with Landlords

Reviewed: 21st March 2016

British Home Stores (BHS), the struggling UK retail business, could be facing the prospect of entering administration if ongoing efforts to improve its financial position do not succeed in the coming days.

The retailer’s owners are in negotiations with landlords of its stores nationwide around the issue of rental arrangements with BHS desperate to reduce its outgoings by agreeing rent reductions and a switch from quarterly to monthly payment terms.

Reports suggest that the business could be heading for administration if landlords who own 87 of its most costly stores do not agree to reduce their rental rates by 25 per cent.

There are thousands of BHS employees working across 164 stores around the UK currently awaiting news on the negotiations in the knowledge that they could soon be out of a job if proposed agreements cannot be reached.

With the help of KPMG, BHS recently entered a company voluntary arrangement (CVA) with the aim of seeing the business reorganised on a more sustainable financial basis.

However, prospects for that restructuring effort hinge on the business’ owners receiving support for the CVA from at least two-thirds of its creditors and landlords, many of which are being asked to cut rents on BHS stores by 25 per cent.

According to the Daily Express, some landlords have already indicated that they are not willing to agree to the proposed terms with the threat of administration looming large.

“The company is focused on getting the CVA to work and is not working on the worst case scenario basis. But [if the CVA is rejected] the next likely scenario is administration,” the newspaper cites sources close to the matter as saying in recent days.

BHS has been struggling to compete with rival retailers operating throughout the UK including Next and Marks & Spencer, as well as low-cost clothing companies like Primark.

The business posted a pre-tax loss worth £85.1 million for the year to the end of August 2014.

It is understood that creditors could collectively lose in excess of £1 billion if no deal to turnaround the company can be agreed and BHS heads into administration and out of business. With 75 offices across the UK, you’re never far away from expert and confidential advice.