René Benko. Credit: provided

Protection proceedings for department store chain: “Benko sustained the biggest damages”

The investor has invested half a billion, says company doctor Geiwitz. The German bankruptcy contingency fund pays 28,000 employees for three months. The corona crisis threatens the future of the department house group Galeria Karstadt Kaufhof, which is owned by the Austrian large-scale investor René Benko.

On Wednesday, the German retail giant with more than 28,000 employees had to apply for insolvency protection proceedings. These proceedings will allow the group to terminate lease agreements quickly, but also makes it easier to get rid of employees, according to SZ Online.

140 million invested only recently

Arndt Geiwitz, who has been the chief representative for these insolvency protection proceedings, said to the newspaper: “Mr. Benko did not want the insolvency protection proceeding originally. He has sustained the biggest damages in this case. Just last week, he invested another 140 million (euros), which is something that others would not have done in this situation. His overall investment will probably amount to half a billion.” Benko announced in a board meeting that he will continue to work on the company’s survival. The investor also agreed to provide further funds in the future, according to reports by Capital and Manager Magazin, which were published Thursday night.

Without any stigma

According to restructuring expert Jan Groß of the Ebner Stolz company, the insolvency protection proceedings “have the advantage that they are without any stigma. The I-word (insolvency) does not appear anywhere in them (in the German version). It is, however, a fact that many of these proceedings end in insolvency after three months.” Many things are possible within the framework of these proceedings that would be unthinkable under normal circumstances. A ten-year lease agreement could suddenly be terminated within three months, staff could be reduced significantly and quickly without any severance payments and without including any labor unions.

Self-managed proceedings

According to reports by SZ, Karstadt Kaufhof has already cleared the biggest pool of costs: 28,000 employees will be paid with insolvency funds for three months, starting in April. The insolvency protection proceedings are handled by Karstadt Kaufhof themselves, therefore the company will be able to overcome the officially ordered shutdowns of stores as well as the costs involved, without taking on too much new debt. However, they would also provide an opportunity to deleverage the company in such a quick way that would be otherwise impossible, which is a particularly interesting opportunity for shareholders.

The legislature’s decision that payments or non-payments cannot be challenged under certain circumstances is a particularly delicate issue among insolvency administrators in Germany. Some people ask themselves now if this decision also applies to loans, which  shareholders repatriate to themselves with insolvency funds. The newspaper report suspects that, apparently, repatriation would also be possible for the 140 million which, according to Geiwitz, Benko contributed last week.

Dramatic drop in revenue

Galeria Karstadt Kaufhof as well as subsidiary company Karstadt Sport applied for self-managed insolvency protection proceedings on Wednesday. Insolvency administrator Frank Kebekus was appointed as trustee by the district court of Essen and he supervises the restructuring process. “The goal is to protect Galeria,” said the company yesterday. Revenues had already declined dramatically since early March due to the risk of contagion of the coronavirus. The department stores have been closed since March 18. The company paints a bleak picture: “Galeria Karstadt Kaufhof loses more than 80 million euros in revenue every week, while substantial costs continue to be accrued. By the end of April, the loss in revenue will add up to half a billion euros.”

The appointed chief representative is the experienced company doctor Geiwitz, who also handled the insolvent drug store chain Schlecker. The head of the department store group is Stephan Fanderl, who, as several insiders say, is not on board due to illness, according to a Reuters report. The Group did not comment on this matter. Fanderl already ordered a strict restructuring course for Karstadt, and he also made cuts after the takeover of Kaufhof.

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