A Kaufhof department store in Hannover, Germany.

One of Europe’s largest department store chains, Galeria Karstadt Kaufhof, and the Esprit clothing brand both applied for what is known as protective administrative insolvency in Germany this week. This kind of insolvency is similar to U.S. Chapter 11 proceedings — and industry insiders warn there will be more coming.

Despite a 1.2 trillion euro rescue package put together by the German government, for some larger companies, taking the step into protective administrative insolvency may still be easier than getting extra credit.

“What we are seeing now, with this Galeria Karstadt Kaufhof proceeding, is just the beginning,” Richard Federowski, an expert in fashion retail at the management consultancy Roland Berger, told local media. “We are counting on more of these kinds of insolvencies and proceedings in the next two to three weeks.”

When applying for extra credit in order to deal with retail closures and an estimated 100 million unsold fashion articles in Germany, fashion retailers or brands can expect to get between 80 and 90 percent of the funds from the government-backed development bank, the KfW. But the remaining percentage must come from applicants’ regular, private banks.

“For that other 10 percent or so, there will be a credit check,” a spokesperson from the German Retail Association explained to WWD. “That takes time and bureaucracy, and it could also come back negative. Then, without the regular bank onboard, the applicant gets nothing at all. It’s very difficult.”

This is because the German government wants to make sure it isn’t rescuing companies or business models on the verge of failing anyway. And it certainly wasn’t clear if Esprit or the Galeria Karstadt Kaufhof chain, which was apparently applying for a reported 700 million euros, would have passed the credit check.

Esprit has been having problems for a while and before Karstadt and Kaufhof were merged in 2018, they had both been in financial difficulties for years, too. The department stores’ owner, Austrian real estate firm Signa Holdings, has spent 640 million euros over the past few months.

“The process [of applying for credit] is very bureaucratic, costs valuable time and is tied to extra hurdles,” the chain’s chief financial officer Miguel Muellenbach said. Additionally, Muellenbach noted, the outcome is uncertain and they simply couldn’t wait any longer.

That is why, theoretically, for larger companies like Galeria Karstadt Kaufhof and Esprit, it is actually easier to apply for protective administrative insolvency, a spokesperson from the BTE, a German textile and clothing retail association, told WWD. Smaller companies or retailers are unlikely to do this because they become personally liable in such a proceeding, the BTE noted.

Like other nonessential retailers in Germany, the Galeria Karstadt Kaufhof department stores have been closed since mid-March. Management estimates that by the end of April, having foregone 80 million euros of business weekly, they will have lost more than half-a-billion euros in revenue.

For a company to apply in court for this kind of insolvency in Germany, it must actually still be solvent. But if its application is successful, it can use the proceedings as a legal basis to continue under its own management and restructure, while warding off creditors. It freezes creditors’ rights to go to court to get bills paid or to reclaim already delivered products.

Also filing for insolvency in Germany, thanks to the lockdown, were Tausendkind, an online children’s wear start-up; Walter Moser which runs the Airfield brand; McTrek Outdoor Sports, with 43 stores, and the fast-fashion Colosseum chain, with 201 outlets.

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