// Sports Direct lawyers have written to Debenhams administrators alleging a conflict of interest
// Law firm RPC allege FTI Consulting was “heavily involved” in making sure Sports Direct was not engaged in rescue process
// FTI Consulting reject the allegations
// Debenhams handed control to its lenders on Tuesday in a pre-pack administration deal
Sports Direct has issued a threat of legal action to Debenhams’ administrators after its near-30 per cent stake in the department store retailer was wiped out.
Earlier this week, Debenhams appointed joint administrators from FTI Consulting, who immediately sold the PLC part of Debenhams to a newly-incorporated company controlled by secured lenders in a pre-pack administration deal in return for reducing the retailer’s £600 million debt.
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It’s widely expected the lenders – which consists of banks, hedge funds and bondholders – will now try to sell the department store chain, given that the pre-pack deal “included provisions for a group sale process to be launched immediately”.
The deal effectively meant all of Debenhams’ previous shareholders – including Mike Ashley’s Sports Direct, which was the biggest shareholder – had their equity wiped out.
In a letter to FTI Consulting, Sports Direct’s lawyers from law firm RPC called for Debenhams’ insolvency process to be reversed and threatened legal action to remove the advisory firm as administrators because of a conflict of interests.
“[Sports Direct] will do everything available to it to unwind the damage caused to the company and other stakeholders (including large and small shareholders) by the events of today including but not limited to challenging the appointment [of FTI as administrators] and all consequences of it,” the letter, seen by the Guardian, read.
RPC added that Debenhams only entered administration because Sports Direct’s numerous rescue bids – including an offer to underwrite a £200m shareholder fundraising – had not been engaged with.
Moreover, RPC alleged FTI Consulting would not able to carry out its duties independently, and accused it of being involved with Debenhams since February 8.
The law firm said this was a conflict of interest because FTI Consulting allegedly sold Debenhams’ operating companies to the secured lenders via a deal before the administration.
FTI Consulting rejected Sports Direct’s allegations.
“We understand that Sports Direct as a shareholder will be disappointed that there is no value in the equity,” the joint administrators said.
“However, the transaction delivers continuity for all group operations and was in the best interests of the group’s creditors, employees, customers, pension holders and suppliers.
“We are entirely satisfied that the sale was in the best interests of the company and its creditors, as explained in some detail in the SIP16 pre-packaged administration report.
“We also note that a sale process is being undertaken and Sports Direct has been invited to participate.
“We are officers of the court and have a duty to act in the best interest of Debenhams PLC and its creditors.
“We strongly refute our actions in undertaking a sale for the benefit of the company’s creditors were subject to any conflict of interest.”
The news comes amid reports that Debenhams’ new owners are poised to appoint a turnaround chief just days after seizing control.
According to Sky News, consulting firm Alvarez & Marsal’s managing director Stefaan Vansteenkiste could be drafted in to restructure the struggling chain.
However, it’s not clear if he would replace Debenhams chief executive Sergio Bucher.
As only the PLC part of the business went into administration, all 165 of Debenhams’ stores continue to operate as per usual and its commercial relationships with suppliers, employees and pension holders remain unaffected.
In its full year report late last year – whereby it revealed a historic statutory loss of £491.5 million – Debenhams revealed plans to close around 50 under-performing stores in the next three to five years.
A full list of shops which it may shut down has not been revealed yet, but the retailer has reportedly been renegotiating rents with landlords and there is speculation a CVA could be launched in the coming months to fast-track the planned 50 store closures.
Under the new ownership of its lenders, Debenhams now has access to the full £200 million with of facilities it had announced on March 29.