Hong Kong-listed fashion retailer Esprit has placed six of its German subsidiary companies in administration while it works out a restructuring plan for the business.

The move comes two weeks after the company issued a profit warning following the closure of all its European stores and nearly all points of sale at its franchise and wholesale partners amid the coronavirus (Covid-19) pandemic.

The so-called Protective Shield Proceedings under German Law – which are similar to Chapter 11 proceedings in the US – protect Esprit from creditors’ claims for the next few months. 

During this time, the current management team will remain in control of the company, and have until 29 June to work out a restructuring plan that will need to be approved by creditors.

Esprit will restructure liabilities and long-term lease contracts. The management team is also seeking funding for salaries for its German based employees accessing government programmes.

“The proceedings shelter the companies from liquidity challenges the industry is facing due to the Covid-19 pandemic,” Esprit said in a statement, adding: “Management decided to make this proactive and forward-looking step to ensure ongoing business operations.”

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The action applies to Esprit Europe GmbH, Esprit Europe Services GmbH, Esprit Retail BV & Co KG, Esprit Wholesale GmbH, Esprit Design & Product Development GmbH and Esprit Global Image GmbH.

“This is the right step for Esprit as the coronavirus pandemic has had a dramatic impact on our business,” says Anders Kristiansen, Esprit Group CEO. 

“Under these proceedings, we are able to preserve liquidity and focus on the restructuring. We want to secure the future of this tremendous brand, and be ready for the opportunities that arise when this is all over.” 

The company had already been trying to restructure its business for the past year, but saw sales in the six months to the end of December fall by HKD1bn to HKD5.763bn. Losses narrowed to HK$331m from $1.773bn, with the prior year hit by one-off restructuring costs and writedowns linked to its strategic plan.