Experts sceptical Wilko deal will emerge with creditors in driving seat

Hopes for a rescue of Wilko were boosted on Friday as the Canadian entrepreneur Doug Putman raised his bid for the budget retailer.

Putman, who already owns HMV, appears to be the only party interested in buying the Wilko name and a serious chunk of the ailing retailer, and it is not clear whether his last-ditch offer will be enough to prevent it from being broken up and sold for parts, with the loss of 12,500 jobs.

Industry experts are sceptical that a deal will emerge as Wilko owes about £40m to restructuring specialist Hilco and at least another £20m is thought to be required to order new stock to keep the brand trading.

Hilco is really in the driving seat on the future of the business as the main secured creditor, with rights over any income from the sale of Wilko’s brand name as well as other assets.

Lending to a business in trouble in the hope of a high return is a practice adopted by many restructuring experts. It has been used previously by Hilco, Gordon Brothers and Sports Direct’s founder, Mike Ashley.

By lending money to Wilko at the start of this year when it was facing a financial crisis, Hilco took a big risk that might have helped save the retailer, but it will have weighed that up against what could be raised, in extremis, if the business went bust, to cover its loan and the interest on it.

It also took a close look at Wilko’s books, to consider whether its own rescue deal might be possible, well before other players became involved.

Once Wilko went into administration on 10 August, Robin Henry, head of dispute resolution at the legal firm Collyer Bristow, said the obligation of the administrators from PwC was to protect the interests of creditors like Hilco.

This means Putman will have to offer more than it is possible to raise from selling off stock and other assets, including leaseholds and any freehold properties – in this case including only about four stores.

“Administrators don’t have an obligation to preserve jobs or keep stores open. Obviously, if someone can offer more to keep stores open and employ more people, then administrators will be happy to agree to that,” says Henry.

Jonathan Polin at the law firm Howard Kennedy said employees do have rights as creditors, but agrees: “If there are secured creditors whose interests overreach those of employees, then administrators will weigh quite heavily towards that.

“If they think they can get more by putting the company into liquidation, then it’s their duty to do that.”