Ashley accused of funding Debenhams legal fight to hurt rival

By

Barbara Santamaria

Published
Sep 3, 2019

Sports Direct owner Mike Ashley has been accused of funding a lawsuit that could drive Debenhams into administration so that he can acquire the struggling department store at a low cost.

Debenhams managed to fend off Ashley’s efforts to take over the business, partly because of the retail mogul’s intention to install himself as CEO, and entered into administration in April. 

The retailer was immediately taken over by its lenders, who gained approval from landlords for a company voluntary agreement (CVA) to keep the company alive. The form of insolvency will allow the retailer to close 50 stores and cut around 1,200 jobs, dealing another blow to the embattled British high street.

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But the Debenhams-Sports Direct dispute is not over, as Mike Ashley is funding a legal challenge by Combined Property Group (CPC), a property management company, to overturn the CVA.

At a court hearing on Monday, Debenhams’ barrister, Tom Smith QC accused Spots Direct of funding the claim to “drive its principal competitor out of business”.

He told Mr Justice Norris, a judge of the High Court of England and Wales, that Sports Direct seemed to want to “drive Debenhams into administration so that it can pick up its assets on the cheap”, adding that this procedure “would be consistent with Sports Direct’s recent modus operandi”.

Combined Property Group owns six builds occupied by Debenhams. It is not immediately clear whether CPC is one of the landlords that will be affected by the retailer’s rent cuts, however it is understood that the CVA will see some landlords’ rent reduced by 35% to 50%.

CPC’s claim says that Debenhams’ 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”.

The CVA plan was approved by 95% of creditors who voted on the proposed deal in May.

But Daniel Bayfield QC, who represents CPC, said that many of those who voted for the CVA “were not affected by it, and who expect to be paid in full at the expense of the most impaired categories of landlords”.

A spokesperson for Debenhams said before the hearing that the department store is “extremely confident this challenge is without merit”.