Co-op vows to defend £450m legal claim over historic sale of Somerfield stores

A legal claim of more than £450m has been lodged against the Manchester-based Co-operative Group.

The group revealed the claim in a stock exchange announcement this afternoon, relating to its £1.57bn acquisition of the Bristol-based  Somerfield chain.

It said: “The group, and certain of its subsidiaries (Co-operative Group Food Limited, Co-operative Foodstores Limited and Rochpion Properties (4) LLP) are aware that a claim has been issued by the liquidators of The Food Retailer Operations Limited in connection with transactions which took place in 2015 and 2016 relating to the Somerfield supermarket business acquired by Co-op in 2009.”

Somerfield was originally called Gateway and a large part of its portfolio of supermarkets were based in the south West.

The Co-op said the amount claimed is in excess of £450m, plus “further unquantified amounts of interest and costs”.

The statement added: “Co-op strongly disputes both liability and quantum of the claim and the claim will be vigorously defended.”

The Co-op announced in May, 2016, that it was selling 36 of its larger supermarkets to enable it to focus on its core convenience food offer.

It said it had agreed to sell Somerfield Stores (SSL), which comprised 36 trading stores and an additional non-core property portfolio, to The Food Retailer Group, part of retail investor Hilco’s group.

All of the SSL properties were acquired by the group as part of its acquisition of Somerfield in 2008.

Although terms were not disclosed at the time, the mutual said it would make a profit on the disposal.

Michael Thomas Denny, Robert John Moran and David Matthew Hammond, of PricewaterhouseCoopers (PwC), were appointed as joint administrators of The Food Retailer Operations Ltd (FROL), on February 10, 2017, and in June the same year, Malcolm Cohen and Mark Shaw of BDO were appointed as additional administrators.

In March, 2017, PwC issued a statement saying: “FROL operated 34 convenience stores across the UK, which trade under the Budgens brand and employ 815 people.

“It also held the leasehold interests in a further 36 non-trading stores, two non-trading properties and the head office of the former Somerfield business.

“Since its acquisition of the stores from Co-op in July 2016, the Company had experienced difficult trading conditions. This resulted in the Company being placed into administration despite sustained efforts to make the business more commercially viable.”

The business adviser added: “Following their appointment, the Administrators have been assessing interest in the business. As a result, following the closure of nine stores at the weekend, the remaining 25 stores will, regrettably, cease trading over the course of the next two weeks with the loss of the remaining 611 jobs.”

Joint administrator, Mike Denny, said: “Unfortunately, we have been unable to find a buyer and it is not commercially viable to continue trading the stores.

“We are working closely with the Co-op, USDAW and the relevant government agencies to ensure that all employees receive the maximum levels of practical and financial support through the redundancy process.”