The Sports Direct boss Mike Ashley wants to “eliminate a competitor” by funding a lawsuit that could plunge Debenhams back into administration at the cost of thousands of jobs, the high court has heard.
The struggling department store chain gained approval from its landlords for rent cuts through a company voluntary arrangement (CVA) earlier this year, keeping the company alive at the cost of 50 planned store closures. In April Debenhams published a list of the first 22 stores to close, which are expected to shut early next year, putting 1,200 job at risk.
However, Sports Direct is funding an effort to overturn the CVA via the courts, in a legal challenge that raises the spectre of administration once again.
At a court hearing on Monday, Debenhams’ barrister, Tom Smith QC, said the retailer believed Sports Direct was backing the case because it “wants to drive its principal competitor out of business”.
Smith told Mr Justice Norris that Sports Direct seemed to want to “drive Debenhams into administration so that it can pick up its assets on the cheap”, adding that such an objective “would be consistent with Sports Direct’s recent modus operandi”.
In written submissions, Smith said Sports Direct’s role in funding the case was “highly unusual and a matter of significant concern to the company”.
The CVA, which will result in some landlords’ rents being reduced by between 35% and 50%, is being challenged by Combined Property Control Group (CPC), which is the landlord of six Debenhams stores in England. Ashley is providing the financial backing for CPC’s claim.
CPC argues that the CVA is “designed to create a situation in which the company’s general body of unsecured creditors is paid in full at the expense of certain landlords and local authorities”.
However, Smith submitted that Sports Direct “is obviously doing this because it thinks it is in its own commercial interests to do so”.
He said that Sports Direct’s conduct “may be borne of a desire to ‘punish’ the company [Debenhams] and its lenders” for rejecting his effort to take control this year.
Daniel Bayfield QC, representing the landlords, argued that the CVA was void as it “goes beyond the jurisdiction” set out in the insolvency act and that it “unfairly prejudices the interests of the applicants”.
He told the court that retail CVAs, which many other retailers have used to mend their finances amid tough conditions on the high street, were a “controversial” tactic.
Bayfield said that most of the landlords applying to overturn the CVA held the properties “on trust for various charities. In those circumstances, [Sports Direct] has agreed to fund the legal fees of the applicants and to pay any adverse costs order made against the applicants.”
The CVA won 95% approval from landlords who voted on the proposed deal in May.
But Mr Bayfield said those figures should be “treated with great caution” as many of those who voted for it “were not affected by it, and who expect to be paid in full at the expense of the most impaired categories of landlords”.
In a statement before the hearing, a Debenhams spokesman said: “We remain extremely confident this challenge is without merit and expect it to fail.
“In the meantime, we are progressing with our restructuring, which was approved by the vast majority of creditors, including 80% of landlords.”
Sports Direct did not return a request for comment.