Bank ending Body Shop lending facilities was key to administration decision

A cut in funding and a failure to find fresh financial backing were pivotal events leading to The Body Shop’s failure in February.

A shortfall of at least £100 million arose after Aurelius acquired the retailer in November, much of which stemmed from HSBC’s decision to withdraw credit facilities, reported The Telegraph.

HSBC is understood to have been a lender to The Body Shop through its previous owner Natura. The decision to sell the retailer triggered HSBC to revisit the relationship and the bank said it gave The Body Shop at least 18 months’ notice of its decision to cut off its lending, which meant potential buyers needed to refinance existing loans or seek alternative sources of credit to help keep the business going.

Whether new owner Aurelius failed to act on HSBC’s funding withdrawal plan, or wasn’t made aware of the issue as a source close to it claimed, after completing the acquisition in January, it found The Body Shop’s finances were in a worse state than expected. This sparked internal discussions over the firm’s due diligence.

Documents released by The Body Shop’s administrators at FRP said: “Following completion of the sale, the company was informed by its bankers that they intended to cease providing banking facilities.”

The decision led to the company being cut off from tens of millions of pounds in credit, which “ultimately resulted in a substantial unplanned cash outflow from the business”.

The administrators added: “These events combined gave rise to a forecast peak funding requirement for the company in excess of £100 million, significantly greater than the requirement identified as part of the acquisition process.

“The substantial difference between the anticipated funding requirements and the reality of the company’s position, combined with the business’s poor trading performance, meant the shareholders could not commit to the required level of funding.”

Aurelius, HSBC and FRP all declined to comment for the newspaper report.