Muji owed up to £85m ahead of being rescued out of administration

The European arm of Japanese retailer Muji collapsed into administration owing up to £85m before a rescue deal was agreed, it has been revealed.

Muji announced its intention to enter administration at the end of March in a bid to keep its UK stores open.

EY was appointed last week to oversee the process which included Muji Europe Holdings Limited being sold to Muji Europe Limited.

At the time, the value of the rescue deal was not disclosed but a newly-filed document with Companies House by EY has revealed that it was completed for just over £18m.

The same document has also set out why Muji collapsed into administration and that creditor claims are expected to be between £75m and £85m.

Muji’s has five stores in London – Carnaby Street, Covent Garden, Islington, Kensington, Oxford Street and Tottenham Court Road – as well as one in Birmingham.

In Europe, it has stores in Finland, France, Italy, Germany, Spain, Portugal, Switzerland and Denmark. It also has franchise stores in Ireland and Poland.

Why did Muji enter administration?

Muji Europe Holdings [MEH] was financed by shareholder loans from Ryohin Keikaku Co [RKJ] and Mitsubishi Corporation [MC].

EY said that during 2020, the company “significantly increased” its borrowings from its shareholders by €26.4m “as a result of the negative impact of trading caused by the Covid lockdowns”.

The first repayment date was September 29, 2023, but Muji had insufficient liquidity to make the payment on time and in full.

Subsequent due dates in January and March 2024 were also missed.

EY added that, following the pandemic, RKJ extended further credit facilities to Muji to defer payment for stock received which resulted in an increasing intracompany liability owned to RKJ.

As of April 8, 2024, the total balance due to RKJ for the purchase of stock stood at £39m.

EY said: “Given the financial condition of MEH and its inability to repay the shareholder loans in full at the due date, an informal standstill between RKJ, MC and Meh was agreed in January 2024 in order to allow the company to continue to trade and facilitate shareholder discussions towards a resolution of the outstanding balances due.

“During this time, MEH remained of the view that a consensual solution may be found between the shareholders and that in the absence of a resolution, RKJ would seek to bid to continue the business.”

However, Muji was unable to renegotiate its obligations and the directors filed administration on March 27.