Hilco pokes head above parapet to take part in Allders profit glut

The collapse of Allders in January has put the spotlight on little-known restructuring retail specialist Hilco.

The UK division Hilco is part of a consortium of investors that bought up Lehman Brothers' debt in Allders.

Further details of the consortium, which is named Epsilon Investments, are shrouded in mystery.

Epsilon is said to be registered in Nevis, with its directors resident in Monaco, although the Kingdom's most famous retailer Philip Green has said publicly that he is not involved.

What little is known about Epsilon is that it was advised on the Allders deal by Hilco and Allen & Overy; Hilco itself was advised by Hammonds.

Normally, the insolvency community wouldn't bat an eyelid at this tangled web, but the Epsilon consortium has reportedly turned an incredible profit.

In January, Lehman Brothers sold off its debt in Allders to Epsilon. Lehman Brothers sold out for just 26p in the pound, but Epsilon could recoup up to 90p in the pound, according to Seymour Pierce retail analyst Richard Ratner, whose estimate was published by The Daily Telegraph.

On debt worth nearly £100m, that's a pretty tidy profit - £640m of profit, in fact. Hilco dismissed the figures as speculation, but the highly respected Ratner is rarely wide of the mark.

Epsilon put Allders in administration at the end of January a week after it bought up the debt, installing Kroll, with which Hilco has a close relationship, as administrator.

Kroll, advised by DLA, moved swiftly to sell off Allders' stores, saving some jobs and recouping a big return for the Epsilon investors in the process.

But there are clear losers in this story: the owner of Allders' equity, Scarlett Retail, in which Minerva is a majority shareholder, will get nothing for a start.

Plus there is a black hole of around £70m in Allders' pension fund. Not to mention the hundreds of people who have lost their jobs.

Neither Epsilon nor Hilco have done anything illegal here - both are merely taking advantage of the UK's current insolvency regime.

But did the Government really intend that anyone should be able to make a quick buck when it drafted the Enterprise Act? In Hilco's US heartland, equity investors and employees are much better protected by the Chapter 11 regime.

Not only did Hilco bring Kroll in as administrator, it was also subsequently appointed by Kroll to advise on stock clearance. Hilco raised eyebrows with this dual role.

The real question, though, is how was Hilco able to buy Lehman Brothers' debt at such a low price?

Hilco is here to stay; it has multiple interests in the troubled retail sector, with positions on Courts, Etam and Ciro Citterio, as well as Allders.

However, it will be difficult for the restructuring specialist to move quite so quietly in the future.