analysis
With Galeria Karstadt Kaufhof’s third bankruptcy since 2020, the employees’ fears continue. What are the chances that something from the traditional company will remain?
For the third time in less than four years, Galeria Karstadt Kaufhof is going bankrupt. What does this mean for the future of the company and its more than 15,000 employees?
The declared goal of the management around Galeria boss Olivier van den Bossche and the provisional insolvency administrator Stefan Denkhaus is a change of ownership in order to free themselves from the “clutch” of the previous owner Signa. The main problem here is “high rents and expensive services”. These severely limited future development opportunities. The Signa Group’s numerous bankruptcies caused “massive damage” to Galeria and hindered its ongoing business. In this respect, the renewed insolvency proceedings are a “liberation blow”.
Stabilization of the business is a priority
First of all, Denkhaus and the management will have to do everything in their power to secure the department store chain’s ongoing business, which represents a particular challenge, especially for a retail company with impending liquidity difficulties.
“The first days of insolvency are quite turbulent,” explains Georg Stemshorn, insolvency administrator at PLUTA Rechtsanwalts GmbH in Augsburg. “The top priority is paying employees.” In principle, an insolvency administrator can terminate any contractual relationship of the company, with the exception of rental and employment relationships, for which a notice period of three months applies.
Employees receive insolvency benefits
An important hurdle has already been overcome. The Federal Employment Agency announced immediately after the insolvency application that the employees should receive insolvency money equal to their net income for up to three months after the opening of the proceedings. In a repeat case like this, such a promise, which was preceded by “intensive consultations with the company and a detailed examination of the requirements”, was not a given.
Meanwhile, Galeria boss van den Bossche told the “Handelsblatt” that his company was “solvent”. However, given the lack of payments from Signa, there is “no positive continuation forecast” for the company. This indicates that the reason for insolvency is “imminent insolvency”.
Offsetting the rent against a claim against Signa?
As far as rents are concerned, the company will try to renegotiate the contracts. The rents for the 18 locations, which belong to different Signa companies, are considered unusually high. It is already being examined whether Galeria can offset its rental debts to the Signa companies against the 200 million euros promised from the second insolvency proceedings, which will probably never be paid. However, this puts the company into difficult legal territory.
Of course, negotiations with suppliers in order to obtain new goods are particularly urgent for the trading company. These are usually grouped together to form purchasing groups, which makes negotiations easier, explains restructuring expert Stemshorn. As a rule, retention of title for unsold goods and credit default insurance are used here.
“Breaking up is not the goal”
Denkhaus declared that he would work “with all his might” to preserve Galeria. “Breaking up is expressly not the aim of the proceedings,” emphasized the insolvency administrator. Discussions with possible investors have already begun, the company said. These “showed that Galeria’s department store business in German city centers and shopping metropolises is highly attractive after such a liberation.”
Insolvency expert Manfred Hunkemöller was also confident that the badly hit department store chain could be saved again. “The new management has done a lot right recently to restructure the company. They are unlucky that the shareholder is not fulfilling his obligations.”
Trade expert Gerrit Heinemann from the Niederrhein University of Applied Sciences was much more pessimistic. “A third bankruptcy within a good three years definitely shows that this company is not sustainable,” he told tagesschau24. The economics professor even believes it is possible that the standard insolvency proceedings now applied for could be rejected due to a lack of assets.
Further location closures expected
“What I can imagine is that parts of the company, perhaps individual locations, will be taken over,” said Heinemann. Other experts also believe that selling the department store chain as a whole is unrealistic. This is all the more so as Galeria is unlikely to be able to count on substantial government support again this time. “In today’s market and interest rate situation, there is hardly any chance of finding a buyer,” said Johannes Berentzen, head of the BBE trading consultancy, in November.
Despite the company’s positive Christmas business, only some of the remaining 92 branches are likely to have operated profitably in the current 2023/24 financial year. This makes a scenario of a partial sale of individual city center stores to one or more investors more likely. Further location closures are likely to be unavoidable in the wake of the third bankruptcy.