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The British retail giant, Mosaic, went into administration yesterday with debts totalling £400 million.
Mosaic owns many big high street clothing chains including Karen Millen, Principles, Oasis, Coast, Warehouse and The Shoe Studio.

There is some controversy however, as all the store chains except for Principles and The Shoe Studio, were immediately bought by a newly formed company called Aurora which is owned by the previous bosses of Mosaic and Kaupthing, the Icelandic bank who was the company’s main creditor.

This process is known as a ‘pre-packaged administration’, where basically; the sale of the debt laden company (in this case Mosaic) was agreed to before appointing an administrator and is executed very quickly so the business will not be offered for sale on the open market. The previous owners buying the business in this way or a ‘management buyout’ are quite common amongst pre-packaged administration deals.

The controversy comes from the fact the firm could be seriously undervalued in the sale along with the apparent lack of transparency these deals have, as the creditors are often the last people to know. Potentially, owners can re-buy a company that was heavily in debt from the administrators and continue trading as a debt free company while creditors don’t regain the money they’ve lost. However, some argue that a pre-packaged administration can help save jobs (in Mosaic’s case, 1000s of jobs) and preserve the firm’s value before delays in the administration process damages the business.

The deal does however; leave The Shoe Studio and Principles still in administration with Deloitte who were hired to deal with the administration of Mosaic. The two chains have over 370 individual stores and concessions inside other stores across the UK, with over 4,000 jobs left hanging in the balance. Although Deloitte has said that negotiations were in advanced stages in finding The Shoe Studio a buyer and several bidders have now emerged for the Principles chain.