David Jones has seen both administrators and receivers appointed this week. ( ABC News: Taryn Southcombe )
Aussie mortgage holders are not the only ones struggling to make ends meet and pay their debts this Christmas.
After 188 years of rich history, Australian retailer David Jones was forced to admit defeat this week.
Shoppers will be wondering what is going on and what is next for the iconic retailer.
To understand what is unfolding at DJs, it helps to consider what happens to individuals when they cannot pay their debts.
When this happens, households or individuals have several options.
They can, of course, try to cut their costs or boost their income to keep making payments.
They can appeal to their creditors (banks and others they owe money to, like utility or telco companies) for an altered repayment structure under a financial hardship arrangement.
In the worst-case scenario, they can default on their payments and wait for their lender to sell their home from under them to recover the money owed.
Or, before that, they can voluntarily declare themselves bankrupt to the Australian Financial Security Authority (AFSA).
AFSA then appoints a trustee who takes stock of the person's assets and debts, and sells the assets to distribute the proceeds among the person's creditors.
The person is declared bankrupt for three years and one day, then emerges with a clean slate, keeping only a few personal items but free of most of their debts (excluding some debts like child care support owing).
As opposed to going bankrupt, the word for when a company cannot pay its debts when they fall due is 'insolvent'.
Company directors face strict penalties if they continue to trade while insolvent or on the brink of insolvency.
Again, there are options for companies facing insolvency.
As a first point of call, they can appeal to their creditors and suppliers for a reprieve from payments, as DJs had been doing with its rent payments owing, including to its biggest landlord, Scentre Group, which owns Westfield shopping centres.
If this fails, however, directors who suspect their company is either insolvent — or about to be — can voluntarily appoint an administrator to take over the day-to-day running of the business (similar to the trustee of a bankrupt person).
Crucially, this can trigger a freeze on payments due — in DJs' case, most pertinently, overdue rent to its landlords — while the administrators take stock of the business.
In addition to this, there is also the option for a company's creditors (people the company owes money to) to appoint an administrator or a receiver to protect their interests.
To insiders, the collapse of David Jones comes as no surprise. ( ABC News: Fletch Yeung )
In the case of DJs, both things have occurred this week — with DJ's directors appointing McGrathNicol as administrators and DJ's largest creditor Hilo Global appointing another firm, FTI Consulting, as receivers.
The administrators and receivers will now duke it out to decide the future of the company, which is likely to include radical downsizing of its retail footprint (that is, closure of stores) and sale of excess stock (against which the loan from Hilo is secured).
To insiders, the collapse of David Jones comes as no surprise. The rise of online shopping has decimated the share prices of physical retailers over the past decade or so.
Some retailers have had greater or lesser success pivoting to online, but the decline of big chain retail stores has been on the cards for a while now.
Of course, this week's interest rate rise, pushing borrowing costs to levels not seen in 18 years, will further crimp consumer spending, particularly in the lead-up to the busy Christmas period.
Remaining retailers, however, may cheer the prospect of cheaper rents as DJ exits malls around the country.
A tussle will now likely take place between the company's creditor-appointed receiver and its board-appointed administrator as they seek to radically restructure and/or ultimately wind down the retailer.
In lending money to DJs, Hilco Global took as security the stock sitting on shelves and hanging on coat hangers in DJ stores. They won't be keen for a fire sale to consumers at bargain basement prices.
But with a drastically reduced store footprint and stores laden with products, there may just be a few bargains on offer for shoppers at DJs this Christmas.
Little cheer for the owners of the iconic retailer, but a glimmer of some Christmas cheer, perhaps, for cash-strapped shoppers.
