Body Shop collapsed after buyer failed to refinance HSBC loan

THE Body Shop collapsed after HSBC withdrew a line of credit and the chain’s private equity buyer failed to secure new funding, The Telegraph can reveal.

A shortfall of at least £100m arose after Aurelius acquired the retailer in November, much of which stemmed from the bank’s decision to withdraw credit facilities.

This “unplanned” funding gap led to the retailer’s rapid downfall in February, three months after Aurelius paid £207m to buy it from Natura, a Brazilian cosmetics company. The revelations shed fresh light on events that led to the company’s controversial entry into administration and are likely to raise more questions about the collapse of the business.

HSBC is understood to have been a lender to the Body Shop through its parent company, Natura, whose decision to sell the retailer caused HSBC to revisit their relationship. The bank subsequently gave the chain at least 18 months’ notice of its decision to end lending, forcing potential buyers to refinance loans or seek alternative sources of credit to help keep it afloat. However, Aurelius failed to act on HSBC’S move so its UK arm filed for insolvency. A source close to Aurelius claimed it had not been made aware of HSBC’S decision to cut ties with the Body Shop.

After completing the acquisition in January, Aurelius discovered the Body Shop’s finances were allegedly in a worse state than it expected, which sparked internal discussions over the firm’s due diligence. It is understood HSBC did not to take the private equity firm on as a client as it was unable to carry out basic compliance checks.

Documents released by FRP Advisory, the administrators, detail the Body Shop’s demise. They state: “Following completion of the sale, the company was informed by its bankers that they intended to cease providing banking facilities.” The decision led to the company being cut off from tens of millions of pounds in credit, which “resulted in a substantial unplanned cash outflow from the business”.

FRP added: “These events combined gave rise to a forecast peak funding requirement for the company in excess of £100m, significantly greater than the requirement identified as part of the acquisition process.

“The substantial difference between the anticipated funding requirements and the reality of the company’s position, combined with the business’s poor trading performance, meant that the shareholders could not commit to the required level of funding.”

HSBC’S withdrawal from the Body Shop and Aurelius’s failure to refinance loans represent the latest twist in the retailer’s collapse. Hundreds of jobs have been lost during the administration and swathes of stores have been shut. Landlords are also braced for rent reductions as part of a planned company voluntary arrangement.

Taxpayers are bearing the brunt of the company’s redundancy costs and MPS have called for an investigation.

Labour’s Liam Byrne MP, chairman of the business and trade committee, has said the firm’s failure is part of a “live research programme” into the role of private equity in the retail sector.

“The Body Shop was a trailblazer for ethical enterprise and it now looks like it’s being crashed while the taxpayer picks up a big bill for redundancy payments,” he added.

Aurelius, HSBC and FRP declined to comment.