Debenhams, the struggling UK retailer that recently filed for administration, is currently facing uncertainty over the responsibility for paying its employees’ wages. The UK government’s Job Retention Scheme (JRS) is currently covering 80% of wages on behalf of companies, but a High Court judge has refused to clarify the commitment of Debenhams’ administrators to these salaries.

FRP Advisory, the appointed administrator for Debenhams, intends to reopen the retailer once the retail lockdown is lifted. Currently, around 13,000 employees of Debenhams are on furlough, with their wages being subsidized by the state. However, FRP’s legal team has warned that if the administrators are held responsible for these wages, a significant number of employees may face redundancy.

The administrators sought a ruling from the High Court on a specific part of UK insolvency law that could grant priority status for wages to employees who were furloughed before the administration filing. This would mean that their wages would be payable before creditor claims and administration expenses. The crucial question is whether FRP “adopted” the employment contracts when they took on the role of administrator. Although the judge did not provide a definitive declaration, they indicated that the administrators’ participation in the JRS and the payment of equivalent amounts to furloughed employees could suggest the adoption of their contracts.

FRP’s barrister stated that if the contracts were considered adopted, the administrators would need to decide whether to honor them or make the majority of furloughed staff redundant. A decision must be made within 14 days of March 9, but it is expected that Debenhams may choose to appeal the ruling.

The legal uncertainty surrounding Debenhams’ responsibility for employee wages during administration presents a potential threat to the jobs of many of the retailer’s staff. As the situation unfolds, it remains to be seen how the administrators will address this issue and what implications it may have for the future of the company.

Useful Links:
1. UK Government’s Job Retention Scheme
2. FRP Advisory