Managers face Arcandor case damages claim

Arcandor’s administrator on Wednesday filed a €175m ($221m) damage claim against the insolvent German retailer’s former chairman and chief executive Thomas Middelhoff and four other former top managers.

A spokesman for Klaus Hubert Görg, Arcandor’s insolvency administrator, said the damage claims had been filed at the state court of Essen. Prosecutors in Bochum and previously in Essen have been investigating the same issue for more than a year, but have not yet come to a conclusion.

Mr Görg claims that Mr Middelhoff, on joining the group as chairman in 2004, was obliged to seek damages against Arcandor’s previous management over excessive rent for stores in a sale-and-leaseback deal – but that he failed to do so.

A spokesman for Mr Middelhoff, who has denied any wrongdoing in the past, declined to comment.

Arcandor, the German retail and travel group, and its various subsidiaries have been in insolvency for more than a year, following many years of falling sales as the group’s department store business model fell out of fashion.

On joining the group Mr Middelhoff tried to prevent it from bankruptcy with his own deal to sell and rent back Arcandor’s remaining department stores to a consortium led by a Goldman Sachs fund.

People close to the situation said Mr Middelhoff had insurance he would draw on if damage claims should prove to be successful.

Arcandor’s insolvency last year came after an attempt to secure state aid from the German government failed following several months of public debate and political haggling.

Aftershocks of the insolvency have yet again made headlines in recent months, when Mr Görg was trying to sell the former heart of the group, the Karstadt department store chain.

Mr Görg, who is the administrator for 37 of Arcandor’s former subsidiaries, agreed last month to sell the department store business to Nicolas Berggruen, a billionaire investor. The deal, however, hangs in the balance after one creditor declined to accept an agreement to substantially reduce the stores’ rents.

People close to the situation said Valovis Bank – the lender that refuses to accept the deal – has refinanced 36 department stores by a covered bond that could come under regulatory scrutiny if a rent reduction were to reduce the value of the stores. Valovis’ spokesman did not return calls on Wednesday.

To prevent the deal falling apart, Mr Berggruen and Valovis will have to come to a solution in advance of July 28, when a lender consortium is scheduled to agree to the rent reduction package at a meeting in London.