UK department store chain Debenhams is to push ahead with a rescue plan involving the closure of more than 20 stores after fighting off a Sports Direct-backed legal challenge.
The judge Mr Justice Norris on Thursday last week said he had rejected the challenge to the department store chain’s compulsory voluntary arrangement (CVA) plan on four out of five grounds.
Stefaan Vansteenkiste, Debenhams chief executive, said: “We are delighted that the court has today confirmed that our CVA is effective and will continue to be implemented as planned. We note that the only aspect that the judge required to be adjusted was a technical provision of the CVA relating to landlord forfeiture provisions.
“Our proposals had unprecedented levels of support from our landlords and today’s outcome is good news for our 25,000 employees, our pensioners and suppliers. We retain the support of our lenders, and everyone at Debenhams can continue to focus on trading ahead of the important Christmas period.”
The CVA involves the closure of at least 22 of Debenhams’ 166 UK stores in January 2020 and rent cuts on many other shops.
Landlords and other creditors, such as suppliers, approved the planned store closures, which formed part of two CVA deals that Debenhams’ new owners have said are necessary to prevent the business collapsing completely.
The CVA came after Debenhams went into administration wiping out shareholders including the near 30% stake in the chain owned by Mike Ashley’s Sports Direct, a stake that cost at least £150m to build up. The department store is controlled by its lenders, including US hedge funds Silver Point and Golden Tree, as well as Barclays and Bank of Ireland.
Sports Direct backed the legal challenge by a private Salford-based landlord owned by the family of property investor Aubrey Weis, which owns six Debenhams properties. Ashley’s retail group was blocked from taking legal action itself.
RPA Perspective The legal action was the latest attempt in Ashley’s long-running battle with the department store. The CVA deal thwarted an attempt by the Sports Direct boss to take control.
In Thursday’s judgment, Norris said it was entirely plausible that Sports Direct was trying to disrupt Debenhams’ CVA in order to acquire the business at an advantageous price or to eliminate a competitor to its House of Fraser chain. But he said: “It does not mean that the applicants have no legitimate interest in pursuing the [case].”
However, it is understood that the deletion of the clause regarding forfeiture offers landlords more flexibility in taking back stores after an initial 90-day period. After that point, the CVA blocks landlords from exiting leases for two years.
