Mike Ashley’s Sports Direct group is trying to muster support for a legal challenge to a Debenhams restructure package that was given the green light this month.
Creditors have until 6 June to challenge two company voluntary arrangement (CVA) deals under which Debenhams plans to to close at least 22 stores of the group’s 166 stores and reduce rents on dozens more.
The deal came after Debenhams fell into the hands of its lenders in a pre-pack administration deal that wiped out shareholders including Sports Direct, which owned a near 30% stake in the department store.
A source close to Sports Direct said the company was talking to landlords and other third parties about legal action as it published a review of Debenhams’ CVA process on Sunday.
The document published by Sports Direct said the company had found “serious issues” within the CVA process that needed addressing, although many of its points did not relate directly to the insolvency process..
The statement raised concerns about a sale process run by Debenhams’ new owners, a consortium of banks and hedge funds who control the department store’s debts, which was concluded shortly before the CVA vote. It said the sale process was run on an “incredibly short and unrealistic” timescale and closed only hours before the CVA vote.
The note also criticises Debenhams’ plan to exit its distribution centre in Sherburn, near Leeds, next year, a move that would leave the company with just one distribution centre serving more than 100 stores.
“In our view as experienced retailers one distribution centre will in no way support the proposed remaining store estate,” Sports Direct says.
Debenhams’ two CVAs were both approved by more than 95% of creditors on 9 May.
A spokesman for the department store said: “With an unprecedented turnout, the CVA proposals had overwhelming support from landlords. Landlords voted heavily in favour – well above the 75% majority required – and we reject any suggestion that the process was not run properly. Creditors backed the CVA as they realise this is the best way to facilitate the restructuring of the business, with a view to saving as many stores and jobs as possible.”
A spokesman for the company’s administrator at KPMG said: “We are entirely satisfied that the sale process was robust and that the timetable was reasonable.”
The possibility of legal action comes after Ashley, the founder and majority shareholder of Sports Direct, attempted to take control of Debenhams as part of his turnaround plans for House of Fraser, the department store he bought out of administration for £90m last year.
But the company rejected a £200m cash injection from Sports Direct, in favour of administration, mainly because it was conditional on Ashley becoming chief executive of the department store chain.