House of Fraser to close 31 stores nationwide after reaching legal settlement with landlords

Department store chain to close more than half its UK branches after struggling to keep up with rising costs

Troubled retailer House of Fraser is set to move ahead with store closures after reaching a settlement with landlords who had challenged the terms of its rescue deal.

In June, the department store chain announced plans to close 31 stores, more than half of its branches, under company voluntary arrangements aimed at allowing the company to deal with mounting debt problems.

The group said the costs of running its store network had become “unsustainable”, and closing branches was a necessary step in order to continue operating.

However, a group of landlords challenged the firm’s plans, on the basis that they were being taken advantage of via the CVA (company voluntary arrangement) process.

CVAs are often used by companies facing financial difficulty, allowing businesses to pay lower rents and offload expensive real estate space.

House of Fraser’s CVA supervisors and the landlords group reached a legal settlement over the weekend, meaning the retailer can go ahead with its store closures, while continuing to seek an investor to fund a rescue deal.

A spokesperson for the joint supervisors of the House of Fraser CVAs said the settlement has been reached to avoid the costs of litigation, and added that it allows the companies to continue looking for a solution without the CVAs being subject to the risk of further legal proceedings.

In a statement released by their legal team, the landlords said: “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.

“Landlords are always willing to enter into a proper dialogue with companies and their advisers with the aim of rescuing a business. However, the retail CVA process in the UK has become increasingly misused and prejudiced against landlords and needs correcting. CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders.”

Mark Williams, president of retail property organisation Revo, said: “House of Fraser is a business that has been underinvested in for many years and that’s the ultimate reason for its failure.

“Landlords are motivated to work with the retail industry, as evident here, and absolutely want to avoid these situations, but the fact is that the inherent weaknesses of the CVA process remain, as this particular case demonstrates, and this needs to be urgently addressed by the industry and by government.”

A number of British retailers have turned to CVAs in recent months, as high street brands struggle to cut costs in the face of huge debts, with Mothercare confirming 50 store closures under a CVA, and Italian restaurant chain Carluccio’s announcing plans to shut up to 30 branches.