On August 10th when home department store chain Wilko called in administrators, many customers, staff and interested readers had many questions about what was going to happen, how they had reached this situation and what would happen next.
We’ve now reached this stage so can answer some of the most commonly asked questions about Wilko – the biggest company administration in the UK this year.
What is administration?
The first question we’ve heard and have been asked is what is administration? Does it mean the business will close for good? What will happen to all the shops and staff?
Once a company enters administration it is given legal protection from creditors who may be threatening legal action to recover outstanding debts probably through a winding up petition which would mean a business is closed and its assets sold off to pay back the creditors.
This breathing space, also known as a moratorium, is very useful as it allows time for a plan to be created to restructure the company’s debts and plot a way back to eventual profitability if possible.
When a business goes into administration, a licensed insolvency practitioner (IP) is appointed to take control of the company from the current directors to manage the business while this long-term plan is put in place.
One of their first jobs is to assess whether the company has the potential to trade successfully in the future and what immediate savings can be made to help immediately improve cash flow.
If, in their professional opinion and experience, the business has no realistic chance of being saved in whole or in part, then they would look to close it (through a liquidation) and then dispose of company assets – stock, buildings, intellectual property such as the brand name and website etc – to obtain the best value for creditors.
This is the prime directive of the IP – to protect the interests of creditors in all their decisions and dealings.
Wilko administration timeline
As we reported in our weekly news round up at the time, Wilko filed a notice of intention to appoint administrators which gives an additional ten days of legal protection from creditors to allow them to seek funding or support before formally going into administration.
Wilko Chief Executive Mark Jackson said: “Today we’re having to take the difficult decision to file a notice of intention to appoint administrators.
“We continue to believe that our robust turnaround plan, with significant re-stablisiation cost savings in progress, will deliver a profitable Wilko and maximise the significant opportunities that we know exist.”
While this was a shock to most shoppers and customers, sales had fallen at the retailer this year and one of their credit insurers had withdrawn cover from them prompting some other suppliers to pause deliveries and making other suppliers put up their prices accordingly.
After giving notice of intention to appoint administrators last week, Wilko followed through and confirmed the appointment placing dozens of stores and up to 12,000 jobs at risk.
Mark Jackson said: “We left no stone unturned when it came to preserving this incredible business but must concede that with regret, we’ve no choice but to take the difficult decision to enter into administration.”
The administrators went to work to seek buyers for the business in whole or in part with an initial deadline of August 16th set to make offers.
While working on any deals, no redundancies were made and a secondary sale was launched reducing the prices of hundreds of products in stores to generate more funds for creditors.
Rival retailer B&M was the first to announce that it had bought 51 shops for approx. £13 million which it will then rebrand.
Administrators announced that 52 stores would close by October with the loss of 1,300 positions including support centre workers and central warehouse staff but talks continue with interested prospective buyers.
Final buyer Doug Putman who had previously purchased HMV in the UK announced his deal to purchase 200 Wilkos stores as a going concern had failed.
Citing an “inability to reduce central infrastructure costs quickly enough to make a deal commercially viable” meant that a stable foundation could not be secured to ensure long term viability for the business and its staff.
Additionally some suppliers wanted their debts repaid in full before they would continue to guarantee supply of many of the more popular products Wilko sold.
Pepco Group announced a deal that would take 71 stores and rebrand them as Poundland.
Wilko’s administrators say that all 400 remaing shops will close by October
The Range agrees a deal to buy the Wilko online brand alone for approx £5 million.
An administration in action
The process of administration is similar no matter whether you have one location, four or 400.
After a free initial consultation with an advisor, usually online but can be in person, a director explains the financial situation in more detail.
The insolvency practitioner (IP) reviews all the information and gives their professional opinion and advice on what they can do next – including but not limited to administration depending on the circumstances – and quotes a fee for services and outlines what the terms of business will be including how any company assets would be dealt with.
If the board agrees to move forward then the company formally instructs the IP to proceed and place the company into administration. At this stage, if they have any floating charges registered at Companies House then they must also give an advance notice of administration to them and provide a statutory declaration via their solicitor.
A statement of affairs is prepared by directors which fully details all company assets and liabilities.
The administrator then begins to work on their plan to restructure the business if viable or to sell it in whole or part to raise funds for the creditors.
If this is not possible then they would look to close the business through liquidation.
None of us are promised a tomorrow.
The same applies to businesses too, no matter how well run and profitable they are today.
Nobody in 2019 could foresee what the next four years would hold for the economy and the country and while we all hope nothing as drastic and dramatic awaits in the next few years, there are no guarantees.
Whether you are happy with the direction your business is heading in at the moment or if you know that soon or later you’re going to have to make some changes then take advantage of the time available to you now and get in touch to talk about what options you have available to you now.