Ahead of a national protest in support of the Debenhams workers, Stewart Smyth argues that the blame lies squarely with failed management and dodgy accounting. And importantly, that with enough support from grassroots union members and the wider community, the workers can win.
For over a hundred days now workers at the eleven Debenhams stores across Ireland have been on strike. On 9 April, 2020 they were informed the Irish subsidiary of the multinational department store was going into liquidation – all stores were to remain closed (even after the lifting of COVID-lockdown) and all jobs were to be lost.
The workers’ response has been a magnificent willingness to fight for an agreed redundancy package – a 2+2 scheme (2 weeks statutory plus 2 weeks for every year of employment). This is hardly an outrageous demand for workers who have provided their labour for years, in some cases decades, to make profits for Debenhams’ owners.
Unwilling to be pushed around by a multinational corporation or to be cowed by harassment from the Gardaí during lockdown, these workers have shown us how to organise socially distanced protests and pickets, and virtual rallies. At the end of April, over 500 people logged on to an e-rally in support of the workers.
Job losses – present and future
At the same time, Bríd Smith (TD) tweeted from the picket line outside the Henry’s St store, that the Debenhams workers were “the canaries in the coal mine”. As I write, Bank of Ireland (BoI) have just announced 1,400 job losses; last month Aer Lingus announced 500 jobs are to go. These high profile examples are accompanied by numerous smaller, local job losses.
At the end of July, the Central Statistics office (CSO) estimated the COVID-related unemployment rate to be 16.7% (down from a high of 28.3% in April). But these numbers do not include the recently announced job losses. So the COVID-related unemployment measure is likely to decrease over the coming months, while the standard unemployment measure will continue to increase – it was 5.0% in July, up from 4.6% in June.
All these numbers highlight the importance of the Debenhams dispute – the outcome of which will go a long way to defining how workers are treated by companies during the coming job losses.
Bad Management practices
The Debenhams workers have been failed by their management. An analysis of Debenhams group financial statements (denominated in Sterling) highlights a series of poor management decisions, coupled with financial manoeuvres, while the Irish operation remained financially sustainable.
Debenhams group has operations in Ireland, Denmark and the UK. In Ireland the group took over the old Roches stores in 2007. Significantly, Debenhams Ireland has been leasing these stores, meaning the Irish operation had a very small asset-based (mainly stock and in-store fixtures and fittings).
While it is widely accepted that the nature of retail is changing, with the growth of online shopping, Debenhams Ireland was able to hold its own in generating sales. In 2018, its Irish operation saw revenue increase by £1.7 million to £149.2 million, driven by “strong digital growth”, and over the five years since 2014 revenue increased from £135.5 million. In contrast revenue in its UK operations fell by 3.33% in 2018 alone.
An increasing or stable revenue indicates that the problems are elsewhere in the business and due to poor internal management. We get an indication of that in the 2018 annual report. The International operations (Denmark, Ireland and rest of the world) made a profit of £28.2 million, while the UK operations made a huge loss of £509.5 million. All of that loss is attributable to non-trading and non-cash transactions. For example, £77.7 million was written off because management abandoned IT projects.
The main element of these losses (£302.1 million) flow from previous management projections not coming to fruition. Such non-cash losses arise because the accounting rules allow assets to be created based on an assessment of future earnings – in essence, previous management grabbed cash flows from the future and when they did not materialise, to the level expected, the current management recognised the losses.
This type of accounting is not unique to Debenhams but has been become generalised across big business globally. For example, in 1975 intangible assets (such as those written-off by Debenhams in 2018) accounted for less than 20% of the total asset value of S&P 500 companies; by 2015 that had risen to over 80%. These type of assets and accounting were also central to Carillion’s collapse in 2018.
Big capital is increasingly fantastical and fictitious.
It’s the debt, stupid!
The Debenhams workers have been told that the trigger for the liquidation in Ireland is that a debt has been called in. From the publicly available documents it is not clear why, or how much of, this debt the Irish company is liable to pay. We know that at the financial year-end, 1st September 2018, Debenhams Retail Ireland Ltd. (DRIL) had no long-term debt on its balance sheet.
In October 2018, Debenhams group in the UK announced that DRIL had become a guarantor for £200 million of loans. These loans had been issued in July 2014 and were originally secured on UK only companies within the Debenhams group.
During the early part of 2019 Debenhams group went through a Company Voluntary Arrangement (CVA) where an agreement was made with creditors to reduce the group’s debts and restructure their business operations. The CVA impacted on the UK operations with a plan to close 22 stores in 2020 and reductions in business rates.
Significantly, DRIL’s 2018 accounts state “The 11 stores in the Republic of Ireland are not affected by the CVA proposals”. DRIL did however, remain a guarantor on the £200 million loan notes.
In August 2019, Debenhams Danish subsidiary was added as guarantors to the same loan notes – resulting in seven companies guaranteeing the £200 million debt (5 registered in the UK and one each in Ireland and Denmark).
On 30 January of this year, the new owners of the Debenhams group released the Danish subsidiary from being a guarantor to the loan notes. There has been no public explanation of why the Danish subsidiary was released but tucked away in a document from May 2019, issued by the administrators for the Debenhams group, is the statement that a bid had been received at that time for the subsidiary. The owners refused to sell, as the price offer was considered too low.
However, it is likely that the Danish subsidiary remains of interest for a purchasing party, who will not want to take on the business and the loan guarantee.
The law prefers finance capital
This history may seem detailed and tortuous to follow but there is a point – corporate and insolvency law is constructed to favour the providers of finance capital, usually debt, over all others (except outstanding taxes).
This is not the first time that workers have lost out to other creditors. Workers at Clerys (2015) were left without pay and redundancy payments due, when the companies went into liquidation. Pressure at the time forced the previous government to commission the Duffy-Cahill report.
Published in 2016 the report made a series of recommendations in an attempt to ensure that workers would not lose out again. Four years later none of the recommendations have been put in place – no laws have been changed.
The previous FG-led government did nothing to stop a Clerys Mark II – the current Programme for Government only commits to another review on “whether the legal provisions surrounding collective redundancies and the liquidation of companies effectively protect the rights of workers”.
Even if the Duffy-Cahill recommendations were implemented it is not a guarantee that the Debenhams workers would receive their agreed redundancy package. This is because in the main Duffy-Cahill recommendations accept the legal landscape as it is, and so seek a complicated combination of legal changes in an attempt to secure improved rights for workers during a liquidation.
Currently, the workers are always last in line.
Workers – not management or finance
There is a more straightforward legal reform that could be implemented: where a company is insolvent all elements of existing collective agreements with the workforce become the priority creditor, even ranking ahead of outstanding taxes.
Duffy-Cahill reported that when they consulted on such a proposal IBEC were vehemently opposed.
In contrast, a socialist approach starts from the labour of the Debenhams workers that has built the company, generated the revenue and made the profits. As outlined above the company is now in difficulties because of bad management and accounting practices.
So why should the workers lose out on being treated with respect and receiving what was agreed by way of redundancy payment?
A struggle that can win
Debenhams workers have been an inspiration over the past four months, showing an immense level of determination to fight for what was promised to them. This fight is having an impact. Last month RTE reported that “KPMG liquidators … have already acknowledged that the current blockade of the shops is impeding the process of shutting down the chain’s Irish operation.”
The dispute can be a turning point for Irish workers – one direction follows what happened to the Clerys workers. We will see more disputes with right-wing politicians turning up on picket lines in their constituencies and then voting against motions in the Dáil to support those workers.
The other direction leads to increased solidarity and pressure being put on the government to directly intervene in the dispute. For this to occur there needs to be a change in tactics and demands:
- Union solidarity – the union leadership in the country has been conspicuous by their absence; they have shown no urgency or willingness to match the determination of the Debenhams workers. The alternative is build support among members of Mandate and other unions, directly appealing to them to support the pickets and protests. One great example of this strategy is that the TUI (Teachers Union of Ireland) Dublin Colleges branch have donated €500 towards the costs of tomorrow’s national demonstration.
A strategy of contacting rank and file union members within the retail industry as well as Aer Lingus, Bank of Ireland and others threatened with redundancies will yield more support than waiting on ICTU to act.
- Local strike support groups – the pickets at each store need to be maintained, while generating support among other workers also needs to happen. One way to achieve this is to set-up strike support groups, where local Debenhams workers can meet with activists and other local union members to arrange local solidarity actions and local workplace meetings. This model allows for a sharing of the workload beyond those who have carried the dispute for the past 120 days by involving local workers and communities.
- From redundancy to public ownership – to date the workers have sought a reasonable resolution to the dispute, the redundancy package that was in their collective agreement. As the dispute has developed it has become clear that any satisfactory resolution will require a political basis. It is estimated that to provide the 2+2 redundancy payment requires €13 million – however, such an action needs a political decision by the government to instruct the liquidators to pay the workers.
If government intervention is needed to secure the redundancy payment, this also raises the question about saving the jobs overall. This can be achieved through bringing DRIL into public ownership.
The arguments to support this are two fold – 1) as outlined above there is a financially viable business, it is bad management that has caused this insolvency; and 2) the government has shown willing to intervene before to save business (most notably in the case of the banks following the 2008 crash).
The Debenhams workers have been magnificent and no doubt will continue to fight, but they cannot continue to struggle on their own. Now is the time for the rest of the union movement in Ireland to Stand with the Debenhams Workers.