Sports Direct boss Mike Ashley surprised the retail sector this week when part of his young fashion business USC was bought out of administration by another of his chains, Republic.
The complex move, dubbed “morally dubious” by one USC-stocked brand, has allowed Ashley to begin restructuring the ailing USC, including closing a warehouse in Dundonald, Ayrshire, with the loss of 150 jobs.
Few details have been released about Ashley’s plans since the sale was announced on January 16.
It is believed Sports Direct filed the notice to appoint administrators to USC at the High Court on January 6 after Diesel issued a demand for unpaid debts, which the retailer was unable to meet. Sports Direct and Diesel, which pulled out of USC last year, declined to comment.
A pre-pack deal allowed Ashley to negotiate the sale of holding company West Coast Capital (USC), which owned 28 of the young fashion chain’s 60 stores, to Republic. Republic is owned by the same part of Sports Direct that holds the rest of USC’s stores.
It is understood some of the chain’s underperforming stores could now be closed.
A USC spokesman would not comment on the process or the warehouse redundancies, other than referring to the developments as a “restructuring”.
He also refused to confirm how many – or even if any – of the 28 USC fascias bought by Republic would be rebranded. All 60 stores continue to trade as USC.
A representative from one brand, who asked to remain anonymous, described the sale as “morally dubious” but said he had no plans to pull out of USC [because it was good business.] He explained: “We had a meeting and we were told we would be paid every penny owed to us [from West Coast Capital (USC)]. Essentially they’re using this as a regrouping strategy to release ties from underperforming stores and consolidate their logistics.”
Neil Smyth, partner in the restructuring and corporate recovery group at law firm Taylor Wessing, pointed out that the pre-pack deal is consistent with the reorganisation of a business and the practice is “legitimate”.
“Pre-pack administrations in retail are often used in restructuring a business to make it more efficient. Generally they secure more jobs, save time and reduce the amount spent on professional fees, but they happen quickly; creditors are only told after the event and they often result in a sale to existing management so there is a perception that they are unfair.
“However, administrators are officers of the court, are highly regulated and have a legal duty to act in the best interest of creditors and to get the best price reasonably obtainable in the circumstances.”
He explained that around two thirds of companies entered into pre-pack administrations are taken on by the existing management, while creditors are left behind with the old business.
The Scottish Trades Union Congress is working with the warehouse workers, supported by Graeme Pearson MSP and solicitors firm Thompsons. A meeting was held on January 17 to provide legal advice to redundant employees.
Ashley had planned to rebrand 24 English USC stores as Republic at the time USC bought Republic out of administration in early 2013. However, in September the same year, Sports Direct began switching all 29 Republic stores to the USC fascia, but kept Republic as a separate company.
USC was previously owned by entrepreneur Sir Tom Hunter’s West Coast Capital investment vehicle, which sold 80% of its stake in USC and Cruise Clothing to Sports Direct in August 2011.