Taxpayers to foot redundancy bill for Body Shop staff

The Body Shop’s collapse has left a swathe of the chain’s landlords bracing for closures – Leon Neal/Getty Images Europe

Taxpayers will be forced to pay millions of pounds to sacked staff at The Body Shop as administrators oversee a drastic restructuring of the collapsed chain.

Employees at the company have been told to make claims through the government-backed redundancy payments service if they are laid off. This is funded using National Insurance contributions.

It comes after administrators announced the closure of almost 100 stores earlier this week, which will mean the loss of at least 300 jobs.

A number of stores, including a flagship outlet on Oxford Street in London which was renovated five years ago, were shuttered with immediate effect after The Body Shop was placed into administration by its owner, the German buyout business Aurelius.

Details of The Body’s Shop’s restructuring and redundancy payments were relayed to staff in a video call on Tuesday, during which administrators at FRP said the company’s presence on the high street, which includes 198 stores, was no longer viable.

It is not yet known which locations will remain open, with the business employing more than 2,200 people across the UK.

Administrators announced the closure of almost 100 stores earlier this week, which will mean the loss of at least 300 jobs – Geoff Pugh

Only staff who have worked for the company for two years or more will qualify for redundancy pay. Payments are capped at around £643 a week before tax, meaning that higher earners at the business, such as those in head office, will lose out.

The impact of redundancy was also felt by employees with company cars, who were told that their insurance would lapse overnight.

The Body Shop’s administration will increase scrutiny on Aurelius, which bought the retailer from Natura for £207m just three months earlier.

Aurelius emerged as the retailer’s top creditor before its insolvency and is understood to be in pole position to reclaim The Body Shop’s assets, shorn of debt, if no bidder materialises. It will not be responsible for redundancy payments.

Its seniority among the creditors means that Aurelius holds sway over the company’s future if it is not sold.

Aurelius is already facing questions over an alleged failure to make payments worth £3m to a group of around 20 former employees in January, which was reportedly part of the cut-price deal with Natura.

It is understood that Aurelius invested less than £20m of equity in the deal, as Natura sold the business at a significant reduction compared to the £870m it paid in 2017.

A person close to Aurelius has rejected claims of financial engineering and said the payments to former employees would be treated like any other financial obligation by the administrator.

As well as putting the future of hundreds of jobs at risk, the collapse has also left a swathe of the chain’s landlords bracing for closures.

Founded in 1976, the Body Shop helped popularise ethical beauty products across the UK – Mirrorpix/Huddersfield

Founded in 1976 by the activist and environmentalist Anita Roddick, The Body Shop helped popularise ethical beauty products across the UK.

However, in recent years, it has struggled to keep up with newer rivals such as Lush and Rituals.

It is understood that after completing its acquisition in January, Aurelius discovered The Body Shop’s finances were in a much worse state than expected, sparking urgent discussions over what went wrong during the company’s due diligence process.

Peter Wood, one of the dealmakers behind the deal, has since parted ways with Aurelius.

Jonathan De Mello, retail consultant and chief executive of JDM Retail, said the current administration process could enable Aurelius “to get a significantly more valuable business back than the one they acquired from Natura for a massively reduced price months ago”.

He said: “The business will be significantly leaner and more profitable as debts are shed, stores are closed and property costs are renegotiated downwards.”

After announcing store closures on Tuesday, the administrators said: “This swift action will help re-energise The Body Shop’s iconic brand and provide it with the best platform to achieve its ambition to be a modern, dynamic beauty brand that is able to return to profitability and compete for the long term.”

Prior to that, they said The Body Shop had struggled after an “extended period of financial challenges under past owners”.

FRP declined to comment on the redundancy payments.

%n

Discover Telegraph Wine Cellar’s new wine club. Enjoy expertly chosen bottles at exclusive member prices. Plus, free delivery on every order.