Hong Kong-listed apparel retailer Esprit has placed six German subsidiary companies in administration to give them protection during the coronavirus crisis, which has decimated sales.
The move was finalised at the end of last week while the company’s shares were suspended from trading.
The measure, called Protective Shield Proceedings under the German Insolvency Act, allows restructuring to take place in self-administration. Esprit stresses the process is only available to businesses which are still liquid – ie: they are able to continue to meet day-to-day expenses as opposed to long-term debt.
In an explanatory statement filed with the Hong Kong stock exchange, Esprit said that with many countries implementing public health measures and taking drastic actions to slow the spread of the coronavirus pandemic, all of Esprit’s European stores have been temporarily shuttered, along with almost all those of the group’s franchise and wholesale partners.
“Subsequent to the announcement, the position of the European companies in the group has further deteriorated significantly, as they currently generate only weak e-commerce turnover, while salaries, rents and operating costs continue to accrue.”
Esprit describes the protective self-administration as a “proactive and forward-looking measure to protect the solvency and liquidity of the group”. It protects the company from claims from individual creditors while they work out a restructuring plan for the approval of creditors and the courts, which must be lodged by June 29.
The German courts approved the process on Friday, appointing Dr Biner Bahr, a Dusseldorf-based partner of the international law firm White & Case, as the preliminary custodian to supervise the restructuring of the subject subsidiaries in self-administration. Esprit has appointed Detlev Specovius, a partner of the German restructuring law-firm Schultze & Braun, who has extensive experience in self-administration cases, to actively support the process.
Esprit said in its filing that while under the protective shield process, it will continue to “pursue and accelerate” the group’s restructuring plan launched in 2018.
“The restructuring plan will help to significantly reduce the liabilities of the [German subsidiaries] to a sustainable and manageable level and one that is in-line with the business needs of the group. By pursuing the Protective Shield Proceedings, the subsidiaries aim to effectively restructure all their liabilities and long-term lease contracts, obtain funding for salaries and social security payments of the German workforce from the German Federal Employment Agency and negotiate with works councils for more flexible solutions.”
Esprit said the move was necessary because while the group is currently liquid, its future liquidity was threatened due to the pandemic and its consequences.
“The company has been working relentlessly to secure the continued operation of all other European subsidiaries in order to allow each of them to return to its ordinary course of business when public life will start again and shops will be reopened with the lifting of the mandatory public lock-down measures as the pandemic subsides in the future,” Esprit said.
“Facing the unprecedented challenge caused by the pandemic, management is focused on optimising and streamlining the group’s business in order to be stronger, leaner and fitter so as to be better placed to pursue the market opportunities that may arise after the pandemic.”
In Hong Kong, Esprit’s share price fell by more than 20 per cent when trading resumed this morning. From a previous closing price of HKD 71 cents last week before trading was suspended, it fell below 55 cents in early trading, before recovering to about 60 cents (about USD0.077).