Dusseldorf, Munich The fashion retailer Gerry Weber has applied for insolvency on its own responsibility for its German trading subsidiary at the Bielefeld District Court. Although business operations are initially to be continued in full, the company is to be fundamentally restructured. There will also be branch closures.
Insolvency is to be avoided for the umbrella company Gerry Weber International AG. However, this has drastic consequences for shareholders: They should resign “without compensation”, as the company announced. The stock market listing will then expire.
The German fashion industry is currently experiencing a wave of insolvencies. According to an evaluation by management consultancy Falkensteg, 27 fashion and shoe retailers filed for bankruptcy or protective shield proceedings in the first quarter alone, including well-known retail chains such as Reno and Peek & Cloppenburg Düsseldorf. That is more than twice as many as in the same period last year.
For Gerry Weber it is the second restructuring within only five years. The company had already filed for bankruptcy under self-administration in 2019. After years of rapid expansion of the branch network and the takeover of the women’s fashion chain Hallhuber, Gerry Weber went bankrupt.
At that time, all shareholders had to relinquish their shares without compensation. However, the same applied to the founding family.
The financial investors Robus Capital Management and Whitebox Advisors then gave almost 50 million euros and received new shares in return. Now it is precisely these investors, who together hold 78 percent of the shares today, that will probably suffer the most from the restructuring. JP Morgan holds another 15 percent, the rest is held by small shareholders.
>> Read also: Peek & Cloppenburg seeks rescue in protective shield proceedings
The expropriation of the shareholders is made possible by the so-called StaRUG procedure (Corporate Stabilization and Restructuring Act). “This allows corporations to restructure before they become insolvent,” explains the experienced insolvency administrator and restructuring consultant Sven-Holger Undritz from the commercial law firm White & Case.
“If the problems are in the financing area, companies can solve them more easily through the StaRUG than through insolvency proceedings,” says Undritz. The management can act without an insolvency administrator, and the costs of the procedure are significantly lower.
Gerry Weber checks every square meter of space
The legislator introduced the StaRUG at the end of 2020. To date, only around 30 companies have used this method. The most prominent example is the auto supplier Leoni, which recently announced that it also wants to apologize in this way.
>> Read about this: Hans-Joachim Ziems defends total loss for Leoni shareholders
The procedure makes it easier for Gerry Weber to carry out a capital cut and leave the stock exchange. The previous shareholders lose their shares. You can only defend yourself to a limited extent.
To support the restructuring of the German subsidiary, Gerry Weber Retail GmbH has engaged Christian Gerloff as restructuring director. Gerloff was already the general representative at the bankruptcy in 2019.
The renovation project is “a necessary reaction to the external circumstances,” said Angelika Schindler-Obenhaus, CEO of Gerry Weber International AG, to the Reuters agency. These included the store closures during the pandemic and changing customer behavior. Retail needs to be realigned.
Schindler-Obenhaus said that Gerry Weber wanted to “build the branch network of the future”, but at the same time “put every square meter of space to the test”. Gerry Weber employs 2100 people worldwide.
Bankruptcy proceedings offer many advantages for companies
The wave of insolvencies in the fashion sector is currently often based less on sheer necessity and more on calculation: with insolvency, companies can restructure themselves cost-effectively and gain advantages over the competition. They do not have to pay salaries for their employees for up to three months, they have a special right of termination, for example for rental contracts, and can part with contracts for loss-making projects more quickly.
However, these special rights do not apply in the StaRUG procedure. With this measure for the listed umbrella company, Gerry Weber essentially wants to reduce its debt burden and then raise fresh capital again.
>> Read also: Fashion retailer Bonita – From bankruptcy to success
“Negotiations with the main creditors of the company to implement the restructuring project and to raise fresh funds will be held in the next few weeks in order to be able to quickly vote on a restructuring plan,” the company said. According to the ad hoc announcement, the new financing structure should secure the company until 2026.
It shouldn’t be easy. “Companies that will go bankrupt for the second time in a few years will certainly have to do a lot of convincing to find financiers,” says restructuring expert Undritz.
More: 108 percent more bankruptcies: fashion companies restructure themselves through bankruptcies.