Real estate bankruptcy: René Benko’s Signa Holding on the verge of collapse

The crisis of the Austrian Signa Group is also evident in many major German cities. There, construction work on prominent projects such as the “Elbtower” in Hamburg and the Berlin “P1” opposite the Kadewe is halting. Signa has already sold its stake in the luxury department store to the Thai Central Department Store for 700 million euros, as well as its stake in the British department store chain Selfridges. A few days ago, the parent Signa Holding filed for insolvency for self-administration at the Vienna Commercial Court. This was preceded by weeks of unsuccessful efforts to obtain sufficient liquidity for an out-of-court rescue. What will happen next with Signa and associated companies is uncertain.

Bankruptcies are simply part of capitalism, argues economist Heinz-J. Bontrup from the Westphalian University for a certain calmness. “Management failure is the main cause.” That also applies in this case. Signa founder René Benko is still aiming for insolvency proceedings on his own. The previous management could then continue to run the group, with the insolvency administrator only playing a watchdog role. In order for this type of rescue to come about, Signa Holding GmbH, based in Vienna and Innsbruck, must submit a restructuring plan that must be approved by the creditors within 90 days. In order for them to agree, Benko would have to demonstrate that Signa can pay them back at least 30 percent of their money within two years.

However, it seems unlikely to industry observers that the creditors will leave the failed management and ultimately the colorful investor Benko at the helm. The bottom line is that larger creditors could be better off in the event of a break-up because they can rely on security interests, contractual liens on individual properties. Benko’s backers include experienced bosses such as the logistics entrepreneur Klaus-Michael Kühne, the well-known management consultant Roland Berger and Fressnapf founder Torsten Toeller.

Benko did everything he could to avoid a “consolidated” conclusion of the group’s approximately 1,000 companies, construction projects and investments, so that an overview of the entire Signa Group is not available. In restructuring proceedings without self-administration, the power of disposal is transferred entirely to the court-appointed insolvency administrator – without the tight time limit of 90 days.

Even if Austrian insolvency law has special features, the focus is on the insolvency plan with the aim of saving the company. This documents why the company slipped into crisis and covers the future realignment. The insolvency plan must be approved by a majority of the creditors, who also hold the majority of the claims.

Even self-administration cannot usually prevent ultimate insolvency, says economist Bontrup. “Without new investors, the lack of liquidity and weak equity at Signa can no longer be compensated for.” It will therefore be used for dormant construction projects as well as for Gallery Karstadt It depends on whether such investors can be found. “It will be difficult.” At the department store subsidiary, this will probably only be the case for individual branches, expects the member of the Alternative Economic Policy working group. Which would finally mean the end of the former “consumption temples”.

Signa Real Estate Management Germany GmbH in Berlin had already filed for insolvency at the end of the week before last. At the rather small service company with an annual turnover of 54 million euros, the salaries of more than 130 employees were no longer secured without the insolvency application. They initially receive insolvency money from the employment agency. Benko’s flagship Signa Prime, for which the German company worked, holds existing properties worth a good 20 billion euros. “After the Signa Group’s strong growth in the low interest rate phase, the interest rate turnaround and rising construction costs have brought it into difficulties,” writes the trade journal “Handelsimmobilien-Report” in its latest issue published on Monday. This meant that the calculations for construction projects such as the “Elbtower” were destroyed.