Zavvi creditors call in 'restructuring team'

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The Independent Online

Creditors of Zavvi have brought in an emergency restructuring team from Ernst & Young to help the high street music retailer, it was reported today.

Woolworths' administrator Deloitte has appointed the team as the group's CD and DVD distribution arm Entertainment UK is Zavvi's biggest creditor.

Zavvi's management team is understood to have approved the appointment of Ernst & Young, which is said to be standing by to step in as administrator if Zavvi is unable to repay its £106 million debt to Entertainment UK, according to the Times newspaper.

The group, which previously traded as Virgin Megastores, has been struggling with supply issues following the demise of Woolworths as it had an exclusive supply agreement to get all of its stock from Entertainment UK.

Zavvi has faced problems stocking its stores since Entertainment UK went into administration last month, and it is no longer accepting orders online.

A message on its website says: "We are currently experiencing supply problems and have temporarily suspended orders until the supply situation is resolved."

It has also cancelled all outstanding orders and refunded customers as it works to find new suppliers.

Zavvi was created last year when Sir Richard Branson sold Virgin Megastores to Zavvi's chief executive Simon Douglas reportedly for £1.

The group has 125 stores in the UK and Ireland and employs around 2,500 people.

It is thought the Virgin Group could become liable for millions of pounds of debt if Zavvi does go under as it has guaranteed the group's orders with Entertainment UK.

It is understood to have underwritten around 60 days of credit for Zavvi, which ends next month.

Deloitte and Ernst & Young both declined to comment and Zavvi could not be contacted.

The reported problems at Zavvi are the latest fallout on the high street from the collapse of Woolworths.

Woolworths embarked on a closing-down sale yesterday after Deloitte said it had been unable to find a buyer for the group.

Deloitte warned some stores could close before the end of December if no offers for the business emerged, and there are fears some of the group's 30,000 staff will be laid off before Christmas.

The administrator has held talks with individuals including former Woolworths chief executive Sir Geoff Mulcahy and Dragon's Den star Theo Paphitis, but no deals have been struck.

The complexity of the group's leases and difficulty in restocking the business after Christmas has reportedly put off interested parties.

But rival retailers, including Tesco, Sainsbury's, Asda and Iceland, are understood to have agreed to buy hundreds of store leases, as many of the group's outlets have planning permission to sell food.