Mike Ashley’s Sports Direct is funding a legal challenge against Debenhams to drive it out of business and “pick up its assets on the cheap”, it was claimed in the High Court on Monday.
Sports Direct, founded by billionaire Mr Ashley, is financing a High Court lawsuit brought by six landlords that are challenging restructuring proposals which the UK retailer’s creditors overwhelmingly approved in May after Debenhams was bought out of administration by its lenders.
The landlords are asking the High Court to overturn the decision by Debenhams’ creditors to approve a company voluntary arrangement — a form of insolvency that allows companies to force losses on creditors. The CVA allowed Debenhams to close 22 stores and reduce rents on 100 more.
However, the landlords, which are part of the Combined Property Control Group, claim the decision was unfair and say they have been treated less favourably than other unsecured creditors.
If the landlords are successful in their legal battle, it could lead to the Debenhams restructuring being unwound and would almost certainly push the retailer into administration.
CPC Group has said the company needs to enter administration by September 29 or the unsecured creditors — the landlords, local authorities and suppliers — will potentially lose £228.8m that could otherwise be clawed back.
Debenhams is fighting the case in a High Court trial which began on Monday. The retailer alleged in its written arguments to the trial that Sports Direct was funding the legal costs of the lawsuit because it wanted to “drive Debenhams into administration so that it can pick up its assets on the cheap”.
Tom Smith QC, representing Debenhams, claimed in the written submissions that Sports Direct, which owns rival department store chain House of Fraser, “wants to drive its principal competitor out of business”.
He claimed that Sports Direct was now using the landlords “as vehicles to advance its own commercial interests” and “given the personalities involved, it is also possible that Sports Direct’s conduct may be borne of a desire to ‘punish’ the company and its lenders for rejecting Sports Direct’s proposals”.
Sports Direct is not a landlord of Debenhams and is not party to the litigation but is funding the landlords’ legal costs. It was Debenhams’ largest shareholder with a 29 per cent stake, which cost £150m to build, but the shares are now worthless.
Mr Ashley twice made offers to rescue the chain but they were rebuffed.
Sports Direct was originally named as a party in the case but dropped its challenge after Debenhams’ lawyers argued that it was not significant enough as a creditor.
The six landlords have claimed to the court that the Debenhams case also raises wider questions about the scope of CVAs and whether they are being properly used by retailers.
“This is the first time that a challenge to a retail CVA has proceeded to trial in recent years,” Daniel Bayfield QC, acting for the landlords, said in his written submissions to the trial. “It is likely that these proceedings will be of significant interest to the legal and business community.”
Sports Direct declined to comment. The case, which is due to last all week, continues.