Written by: Keith Tully
Published: 12th June 2019
The retailer Sports Direct, along with other relevant parties, has commenced a legal challenge against the terms of a Company Voluntary Arrangement (CVA) designed to rescue the department store operator Debenhams.
Sports Direct, which was until recently a major shareholder in Debenhams, is reportedly seeking to see the CVA overturned, despite those arrangements receiving the requisite support from creditors for it to be legally implementable.
The terms of the CVA, which is a form of insolvency commonly used within the UK’s retail sector, means that Debenhams can close down underperforming stores and substantially reduce its rents in the process.
Lenders took charge of Debenhams in May amid a serious financial crisis and then rejected offers of a rescue package and buyout that were proposed almost at the last-minute by Sports Direct.
Official complaints about the CVA deal were registered with the relevant parties on June 11th, very shortly before a legal deadline for doing so was to pass.
Before its CVA terms were backed by creditors in May, Debenhams entered administration in early April, with Sports Direct at that point having a 29 per cent ownership stake in the company that was subsequently lost.
Mike Ashley, the owner of Sports Direct and now a well-known retail tycoon, described the Debenhams administration process as a “national scandal” and insisted that it should be reversed.
Statements given on behalf of the Debenhams have confirmed that Sports Direct is among several companies to have lodged a legal challenge to the CVA deal into which the company recently entered.
Debenhams’ executive chairman Terry Duddy said: “We believe the challenges to the CVAs to be without merit and will vigorously defend them.
“Given the overwhelming support for the proposals from creditors, including over 80 per cent of landlords, this is an unnecessary distraction as we implement our restructuring plans.”
Debenhams currently has more than 150 stores operating across the UK and employs roughly 25,000 people around the country.
However, the retailer issued three official profit warnings over the course of 2018 and reported losses worth £491.5 million for its most recent full year of trading.