Homebase plan for Habitat and Laura Ashley

HOMEBASE creditors have been urged to back a “vital lifeline” restructuring or risk seeing the DIY chain collapse into administration or liquidation.

A crunch meeting next Friday will decide the fate of the UK’s second biggest home improvement retailer, which was sold for £1 to turnaround specialist Hilco after a disastrous two years under the ownership of Australian Wesfarmers.

Hilco would look to raise about £140million through equity and debt funding to revive Homebase. This could involve the reintroduction of concessions such as Laura Ashley and Habitat.

A company voluntary arrangement (CVA) would see 42 stores close by next year with the loss of up to 1,500 jobs.

A document prepared for landlords and other creditors is understood to show that over 70 per cent of its 241 shops are currently loss-making.

It had annual pre-tax earnings of about £20-40million before its £340million acquisition in 2016 by Wesfarmers, which began rebranding stores as its successful Bunnings DIY chain Down Under.

But Wesfarmers took a £500millionplus writedown after admitting a lot of its losses were “through our own doing”. This followed management changes and the ditching of bathroom and kitchen ranges as well as the concessions as it focused more on power tools, large barbecues and building materials.

The strategy was “unsuccessful” and the document added: “If the CVA is not approved, then it is likely Homebase will go into administration or liquidation.”

Homebase, which has shed 300 jobs at its Milton Keynes headquarters, seeks rent reductions of 25 to 90 per cent at 70 stores, in addition to closing 42 stores.

Richard Fleming at the CVA sponsor Alvarez & Marsal, said: “The CVA is a lifeline for Homebase, and gives the management an opportunity to turn the business around and secure its future for the benefit of all stakeholders.”

The use of CVAs by struggling retailers has drawn criticism from landlords which claim they are treated unfairly compared with other creditors.

Some have expressed doubts over backing the proposals, others have noted Hilco’s success in reviving music retailer HMV, which it rescued in 2013.

The British Property Federation said Homebase and Alvarez & Marsal had “demonstrated best practice”.