Suppliers and concessionaires to beleaguered department store chain House of Fraser may lose out on tens of millions of pounds, and even be forced into receivership, after the chain was snapped up by Sports Direct for £90 million last week.
Sports Direct – headed up by billionaire mogul Mike Ashley – has said it will not be bailing out suppliers, who are believed to be owed a collective £70 million for goods sold previously by the 169-year-old retailer.
In a letter to suppliers reportedly seen by The Times, Chris Wootton, deputy chief financial officer at Sports Direct, said it will only honour payments for stock sold from the time of the acquisition on Friday.
Sports Direct bought House of Fraser in a pre-pack insolvency deal last Friday for £90 million
Wootton said: ‘Concessions have been and will continue to be an integral part of this business. Whilst we understand the uncertainty the last few weeks may have caused, we ask for all our concession partners to continue business as usual over the next few days.
‘In return, the Sports Direct group will provide a guarantee to pay for all goods sold in the days since the acquisition on the same trading terms as previously agreed with House of Fraser. This guarantee will remain in place until the end of August 2019 in the first instance.’
Sports Direct bought House of Fraser’s brand, stores and stock in a pre-pack deal on Friday, just hours after the 169-year-old business appointed administrators at accountancy firm EY.
The insolvency method and deal has sparked controversy as it means Sports Direct has no obligation to shoulder the debts of House of Fraser’s unsecured creditors, including its pension fund, suppliers and landlords.
While the retailer’s banks and bondholders will be paid some of what they are owed, unsecured creditors are unlikely to get much back.
It is understood that a battle has already been mounted to prevent House of Fraser’s pension liabilities falling to the pension lifeboat – the PPF, as this could subject members of the scheme to reduced payouts.
House of Fraser was due to close 31 of its stores through a CVA before it slumped into administration
Ashley looks set to play hardball with House of Fraser’s landlords too, and has tasked property consultancy CBRE with kick-starting negotiations over lease terms.
Upon the acquisition, House of Fraser’s plan to close more than half of its 59 stores through a Company Voluntary Arrangement was terminated.
Ashley said he will endeavour to keep as many of its stores open as possible as part of a mission to turn the chain into the ‘Harrods of the High Street’.
‘More stores could potentially remain open than in the CVA if there are open and constructive negotiations on rates and service charges between Sports Direct and landlords,’ argued CBRE retail chairman Malcolm Dalgleish.
The sportswear tycoon, who also owns Newcastle United Football Club, is understood to have pipped other bidders, including Edinburgh Woollen Mill owner Philip Day and turnaround specialsits Hilco and Alteri, to the post.
EY said Ashley’s bid was the ‘only offer’ that could keep House of Fraser, which employs 17,000 people, afloat.