The High Court has rejected a Debenhams’ CVA legal challenge that was funded by former major shareholder Sports Direct.
The department store was taken to court by Combined Property Control Group (CPC) – the landlord of six Debenhams stores in England – over the argument that its CVA was “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”.
CPC’s legal challenge was financially supported by Mike Ashley’s Sports Direct, which dropped its own legal challenge against Debenhams in July.
This morning, a High Court judge rejected CPC’s challenge on four of the five grounds addressed.
Debenhams said the remaining ground has been addressed by the deletion of a technical provision of the CVA relating to landlord forfeiture.
The court ruling means Debenhams can now push ahead with its CVA, which consists of shutting down 22 stores by January 2020, and rent reductions or lease negotiations on a further 105 stores.
After the initial batch of store closure, the department store will eventually close down a total of 50 of its 166 stores as part of its CVA.
“We are delighted that the court has today confirmed that our CVA is effective and will continue to be implemented as planned,” Debenhams chief executive Stefaan Vansteenkiste said.
“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’ CVA was first soon after lenders took control of the business in April, when it fell into administration.
The CVA proposals then received the approval of creditors in May, with votes in favour of it meeting 75 per cent threshold.
Sports Direct had been Debenhams’ largest shareholder and attempted to gain control of the department store chain in the months leading up to the department store’s fall into administration in April.
Ashley even staged a boardroom coup in January, unseating the retailer’s then-chief executive and chairman Sergio Bucher.
When lenders took control of Debenhams after it went into administration, it had already rejected a rescue offer from Sports Direct to inject £200 million into the business.
Sports Direct’s near-30 per cent stake, as well as other shareholders, were wiped out in the process of the lenders taking control.
Ashley had spent an estimated £150 million on his stake in Debanhams.
His company initially submitted a legal challenge in June, but this was withdrawn in July in favour of funding CPC’s lawsuit.