Most retailers, if singled out by the leader of the Opposition and held up as a symbol of poor business practice, might resolve to make some changes, or at least watch their step.
But most retailers are not like Mike Ashley.
The Sports Direct billionaire – denounced by Ed Miliband last year for his “Victorian” employment practices – is a busy man at the moment. He is trying to gain control of the floundering Scottish football club, Rangers. And yesterday Ashley confirmed that he had cashed in £116m-worth of Sports Direct shares, possibly to help finance that football deal.
But the failure of Ashley’s fashion brand, USC, this month has thrown the spotlight back on to Ashley’s retail activities – and could end up landing him in hot water.
USC announced it was going out of business on 8 January, but last Friday it was bought up by Republic, another arm of Ashley’s Sports Direct empire. This turned out to be a controversial “pre-pack” administration which, though perfectly legal, has left suppliers out of pocket and 88 staff redundant, with some of the costs to be picked up by the taxpayer.
One senior politician yesterday called the behaviour a clear abuse of the insolvency rules and staff have outlined to The Independent how they believe they have been mistreated by their employer.
Alastair Cook, who had worked for USC for eight years in the company’s Dundonald factory in Ayrshire before being made redundant last week, explained: “The first warning signs were on 4 January when we got some emails, saying we are doing a full warehouse stock-check. It’s not unusual, but it did raise a few eyebrows.”
Five days later, at 7.30am, two senior workers from Sports Direct’s head office in Shirebrook, Derbyshire, arrived and told staff that they were to start loading up 50 Sports Direct trucks, which arrived an hour later.
Mr Cook explained: “We weren’t told USC was going bust or going into administration. We made some calls to head office to ask what was happening, but no one told us anything. We knew something was up but were told to carry on loading the trucks. We were essentially digging our own graves.”
On 8 January the situation turned farcical when the landlords of the warehouse, Sir Tom Hunter’s private equity group West Coast Capital, got wind of the stock being shipped out, and sent their own staff to blockade the departing trucks.
By 2.30pm the trucks could not leave and the police arrived. Sir Tom was owed rent and a billionaire’s-standoff ensued which led to the power being shut off to the factory and an eight-hour negotiation. The landlord’s bill was finally settled.
Before the power was cut, Mr Cook also noticed that the USC website said “© 2015 Republic.Com Retail Ltd” whereas it had previously said “© 2015 West Coast Capital (USC) Ltd”. “That suggested to us the sale was a done deal – before we had been told anything,” he said.
On the trucks were thousands of products bound for stores, including those supplied by Diesel, the company USC cites as the cause of its insolvency after the fashion label demanded remuneration for unpaid stock. Mr Cook said payment delays to suppliers were becoming a regular occurrence at USC.
Once the warehouse was empty, staff say they were left to sit in the canteen for eight hours a day, waiting for information. Finally, two administrators from Gallaghers arrived and handed staff a letter informing them that the company was at risk of administration and a consultation period had started.
Staff say that just 15 minutes later, a second letter was handed to them, telling them the company had indeed fallen into administration. They claim no one told them that a formal notice of intention to appoint receivers was filed with the High Court a few days earlier.
One member of staff, who did not want to be named, said: “Because no information was given to us, we couldn’t even make arrangements for things like benefits, as we didn’t know if we would be redeployed into stores, or paid our owed wages and redundancy.”
Adrian Bailey, the Labour MP and chair of the Business Select Committee, said the USC affair demonstrated why the law covering pre-packs should be reformed.
“The abuse of pre-pack is usually in the context of directors buying back a bust business themselves. This is a slightly more sophisticated approach and demonstrates contempt for the due processes that regulation is supposed to impose, and also a complete indifference to staff, suppliers and landlords left out of pocket,” he said.
“You might also say if they were able to pay the landlords in order to gain access to the warehouse, why can’t they live up to their responsibility and pay the staff?”
Questions remain over exactly why USC fell into administration.
The company was funded primarily through a £20m revolving loan from Sports Direct and its most recent accounts say “Sports Direct International Plc has agreed not to withdraw finance for the foreseeable future.” The company also made a £1.1m pre-tax profit in its most recently filed accounts, and there are no warnings over the company’s future. So why was the funding suddenly pulled?
There were no answers coming from Sports Direct last night. A spokesman said: “Sports Direct notes factual inaccuracies in these allegations but has no further comment.” He failed to elaborate on the inaccuracies, but one thing is sure: Mike Ashley has pulled off yet another display of his iron fist-like retailing behaviour.
But at what cost?
Pre-pack facts: The real costs
Landlords can lose out because the new (old) owners can demand a rent renegotiation or threaten to leave, as all former contracts become null and void. Suppliers can be hit because bosses might renegotiate payment terms for stock already in their possession. Under administration rules, an insolvent company cannot pay its staff, so laid-off employees must claim unpaid hours and statutory redundancy from the taxpayer-financed Insolvency Service.Reuse content