Sports Direct accuses Debenhams administrators of conflict of interest

 
Sebastian McCarthy
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Mike Ashley had a 30 per cent stake in Debenhams before the pre-pack administration (Source: Getty)

Sports Direct doubled down on its calls for the administration of Debenhams to be reversed this afternoon, as it mulls potential legal action following Mike Ashley’s failed bid to take control of the retail chain.


Lawyers from the sportswear retailer said today that the appointment of administrators and the subsequent pre-pack administration only happened because Ashley’s own rescue proposals "were not engaged with".

Read more: Mike Ashley considers legal action against Debenhams

The group also said that while any administrator appointed had a duty "to investigate why those proposals were not engaged with", the current administrators FTI Consulting are "conflicted".

In a letter to the firm’s administrators today, legal representatives of Sports Direct (SDI) said: "SDI 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 and all consequences of it."


They added: "SDI has today called in the press for the administration, and its consequences, to be reversed. We are asked to repeat and reiterate that call to you now and to invite you to give effect to it before SDI is required to take further action(s).

"SDI reserves fully its rights in respect of an application to court for your removal as administrators of the company on the grounds that you are, inter alia, conflicted and unable (at a very minimum) to independently perform your duties of investigation."

It claimed "any administrator appointed over the company has a duty to investigate why those [Sports Direct's] proposals were not engaged with".

The note from Ashley’s legal representatives comes hours after Sports Direct said that it was mulling legal action against Debenhams after the retailer collapsed into administration, wiping out shareholders.

Sources close to the restructuring have said that FTI retained independent counsel, while the lenders were advised by separate counsel in negotiations over the terms of Debenhams' administration.

Retail tycoon Mike Ashley branded the pre-pack administration a “national scandal” yesterday after he failed to gain control of the department store chain.

Read more: Ashley lashes out as Debenhams enters administration

Sports Direct’s deputy chief financial officer Chris Wootton told the BBC this morning that the company was considering suing Debenhams, adding it was more than an idle threat.

He said the board “have absolutely not carried out their fiduciary duties” to shareholders.

The joint administrators have said: "We understand that Sports Direct as a shareholder will be disappointed that there is no value in the equity. 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. The underlying group operating companies are unaffected and continue to trade as normal."

He added: "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."