Debenhams defending challenge to its rescue programme
Business advisor Deloitte is poised to handle the administration of high street retail chain Debenhams should it lose a legal challenge launched this week.
Combined Property Control Group (CPCG) owns six of the properties that Debenhams lets, including Southampton, Harrogate and Folkestone.
It started a High Court action yesterday (September 2), funded by retail tycoon Mike Ashley, challenging the company voluntary arrangement (CVA) the chain announced in May.
The CVA was agreed by the majority of Debenhams’ creditors and landlords, leading to cuts in rental charges of up to 50% and saving the chain from collapsing into administration.
However, CPCG claims it was treated unfairly as a creditor.
If its challenge is successful the CVA would be unwound and Debenhams would fall into administration. The store group has lined up Deloitte in the wings in case it loses the case, and a right to appeal.
The court heard on the first day of the case that Sports Direct boss Mike Ashley wants to “eliminate” struggling retailer Debenhams.
The court hearing yesterday saw Debenhams’ barrister, Tom Smith QC, say he thought Sports Direct was backing the case to “drive its principal competitor out of business” with the loss of thousands of jobs.
He added that Sports Direct appeared to want to “drive Debenhams into administration so that it can pick up its assets on the cheap”, [which] “would be consistent with Sports Direct’s recent modus operandi”.
CPCG says 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”.
Daniel Bayfield QC, representing the landlords, said 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”.
However, a Debenhams spokesperson 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 over 80 per cent of landlords.”
Sports Direct owner Mike Ashley failed in two previous attempts to acquire Debenhams.
He dropped his own legal challenge against the chain in July.
Sports Direct was Debenhams’ largest shareholder, with just under 30% of its stock.
In April the chain’s lenders took control of the business after it rejected a rescue offer by Sports Direct and an offer to invest £200m into the business.
It is estimated that Mr Ashley had spent £150m on building up his stake in Debenhams, which was wiped out.
As part of the CVA process Debenhams announced plans to close 50 of its 166 UK stores, with the process expected to start early in 2020.
Among the first stores expected to close in 2020 are Altrincham, Ashford, Birmingham Fort, Canterbury, Chatham, Eastbourne, Folkestone, Great Yarmouth, Guildford, Kirkcaldy, Orpington, Slough, Southport, Southsea, Staines, Stockton, Walton, Wandsworth, Welwyn Garden City, Wimbledon, Witney and Wolverhampton.
The group operates flagship stores in Manchester’s Market Street, and the Liverpool One retail centre, as well as outlets at the Trafford Centre, Chester, Cheshire Oaks Ellesmere Port, Warrington, Stockport, Oldham, Bury, Bolton, Wigan, Blackburn, Preston and Blackpool.
Last month the chain appointed turnround specialist Stefaan Vansteenkiste as its new chief executive.
The legal challenge will be heard this week, and a verdict is expected in the next few weeks.
