Debenhams wins High Court battle to proceed with CVA
Debenhams has won a High Court battle allowing it to proceed with its Company Voluntary Agreement (CVA) process, having seen off a challenge from disgruntled landlords backed by Sports Direct's Mike Ashley.
The department store won the approval of 80% of creditors to carry out a CVA, which will enable it to close 50 stores and cut the rents on 100 more, in May.
However Sports Direct chief Mike Ashley backed a challenge by landlord Combined Property Control Group, which was dismissed today.
Debenhams said the case had failed on four of five grounds and the fifth was addressed by deleting a “technical provision” in the CVA.
The department store's CEO Stefaan Vansteenkiste said of the ruling: “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.”
Debenhams proposed the CVA after its lenders took control of the previously listed business in a pre-pack administration deal. Before the administration Mike Ashley had been the retailer's largest single shareholder with a near 30% stake, which was wiped out when the business was take down. He described the administration as a "national scandal".
Ashley had made repeated attempts to take control of the business himself but had been rebuffed each time by lenders. After the CVA was announced Ashley initially stated he would challenge it himself but dropped the idea and instead funded Combined Property Control Group's challenge.
Mr Justice Norris said Debenhams “seriously considered” accepting the funds but believed the conditions – including installing Ashley as boss – were “too onerous or impossible to fulfil” especially because Sports Direct owned rival House of Fraser.
The judge added that it was “entirely plausible” that Ashley wanted to buy Debenhams to get “an advantageous price” or “the elimination of a competitor to House of Fraser”, which the business tycoon bought last year.
He also said it was plausible that Ashley went to court “to pursue his grievance at the manner in which his attempt to acquire Debenhams pre-administration was frustrated”.
In his judgment, Mr Justice Norris added that Sports Direct’s arguments that Debenhams had been influenced by a desire to prefer other creditors “did not have legs” and praised Debenhams finance chief Rachel Osborne on her evidence, calling her a “transparently honest and careful witness”.
“Dealings were also constrained by the reluctance of Sports Direct to sign up to a non-disclosure agreement” before looking at Debenhams’ accounts, he added.
The judge was also scathing about Sports Direct’s involvement in the case, in particular, criticising the company for not challenging Debenhams’ claim that new funding raised in March was secured debt, rather than unsecured.
He said: “The applicants had the opportunity to advance this case in evidence in reply, but squandered it by seeking to adduce the evidence of a business consultant retained by Sports Direct covering so much of the history concerning Sports Direct’s attempts to remove members of the Debenhams board and to have Mr Ashley appointed CEO, containing such accusations of mismanagement and misrepresentation by the board, and such personal attacks on the integrity of the Debenhams board that it would have been an injustice not to allow them to be tested: yet to permit cross-examination would have derailed the expedited trial. So I did not admit it.”
Additional reporting: PA Media