Sports Direct wants to “drive Debenhams into administration” in CVA lawsuit, court told

2954
Sports Direct Mike Ashley wants to
Debenhams' CVA is in the midst of being challenged by Combined Property Control Group
// Debenhams’ lawyer says Sports Direct wants to drive it “into administration” through funding a lawsuit on its CVA
// Sports Direct is bankrolling a lawsuit led by Combined Property Control Group
// The High Court is set to hear the case over four days

Sports Direct wants to “drive Debenhams into administration” through its funding of a CVA lawsuit, the High Court was told today.

Debenhams’ CVA is in the midst of being challenged by Combined Property Control Group (CPC), which is the landlord of six Debenhams stores in England.

At a hearing in London regarding the lawsuit, the department store’s barrister, Tom Smith QC, said the retailer considered that Sports Direct was funding CPC’s case because it “wants to drive its principal competitor out of business”.

Smith told 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 CPC’s case was “highly unusual and a matter of significant concern to the company”.

He added that Sports Direct was a major shareholder in the Debenhams group and had “voiced grievances that its own proposals for the restructuring/refinancing of the group were not accepted”.

Smith also said Sports Direct was “obviously [funding the case] because it thinks it is in its own commercial interests to do so”.

He suggested that Sports Direct’s conduct “may be borne of a desire to ‘punish’ the company and its lenders for rejecting Sports Direct’s proposals”.

CPC argues 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 retailer gained approval for rent cuts and store closures through a CVA earlier this year, paving the way for 50 store closures and an estimated 1200 job losses.

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 were a “controversial” tactic.

Bayfield submitted that most of the applicant landlords held the properties “on trust for various charities”, adding: “Challenging a CVA is an expensive and uncertain process, particularly for a charity.

“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.”

Debenhams’ CVA was approved by nearly 95 per cent of creditors by value who voted on the proposed deal.

However, 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 ahead of 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 per cent of landlords.”

Sports Direct has declined to comment.

Justice Norris is set hear the case over four days and is likely to reserve his judgement.

Click here to sign up to Retail Gazette’s free daily email newsletter