The chairman of Sports Direct is presiding over a FTSE 100 company run like a “backstreet outfit” where executives made deals behind the board’s back, withheld payments to force suppliers and landlords to the negotiating table and failed to consult with staff over the pre-pack administration of its fashion chain USC, according to MPs.
Keith Hellawell, chairman of Sports Direct, faced the accusations from the Scottish Affairs Select Committee, who suggested his own distinguished record in the police was at risk over the company’s behaviour in the collapse of USC.
The company, which was a separate subsidiary of Sports Direct, went bust in January and was bought back debt-free by Sports Direct. It left 88 staff redundant, and £15.3m debts to suppliers and landlords wiped clear, along with £700,000 owed to the taxman, who must also pick up the redundancy payments.
He was also asked to explain Sports Direct’s extensive use of zero-hours contracts and he revealed for the first time that the company hires 75 per cent of its UK workforce on the controversial contracts.
Mr Hellawell also revealed that in the lead up to the collapse of USC he had not known the company would go into administration until the day before and had been working to save the factory.
He added that the chief executive, Dave Forsey, and deputy executive chairman, Mike Ashley, had met administrators without his knowledge two months before USC went bust to start discussions on a pre-pack administration.
The committee heard that USC went bust after bosses withheld payment to one of its biggest suppliers, the fashion chain Diesel, because it was fearful the company would stop supplying USC. That could have caused other suppliers to follow suit.
However, Mr Hellawell was forced to admit withholding payment was akin to holding Diesel “to ransom” – something he accused Sir Tom Hunter of doing when the businessman blockaded the USC warehouse in Dundonald over unpaid rent.
Mr Hellawell said he did not know how widespread the practice of withholding rent from suppliers and landlords was, but added: “We are in negotiations with a large number of landlords to reduce the cost of property at the moment … Clearly I am going to ask some searching questions of the board.”
However, Simon Reevell MP asked why Mr Hellawell, as chairman, was not better informed. He added: “You actively breached a contract with Diesel in order to try to bring them to the negotiating table. You are the chairman of a FTSE 100 company and you are in that role to bring credibility as a [former] senior police officer.
“At least on one occasion the company tried to renegotiate a deal by withholding …payments it is contractually obliged to pay. That sounds like some sort of backstreet outfit … can you understand that we struggle to understand why reputational matters such as this are completely unknown to you as a chairman?”
The committee’s chairman, Ian Davidson, added: “Some members of the board knew that these discussions were going on, like Mike Ashley and the chief executive. Other members of the board, including you, did not know that.
“There are two categories of board members – those that are in the know and those that are not. Essentially you were there for decoration, to make a final decision that had already been made to be rubber-stamped.”
Once the session ended, Mr Hellawell told The Independent that despite the issues raised about Sports Direct, he has no plans to resign.
The committee had wanted Mr Ashley to appear, but was told he was unavailable. It, however, dismissed claims by Mr Ashley’s lawyers that it breached his human rights by publishing correspondence between the two parties. Mr Hellawell said yesterday Mr Ashley would be happy to appear at a future hearing.
The committee also heard about the widespread use of zero-hours contracts, which Mr Hellawell said were being reviewed in light of new legislation that will ban their “excessive” use. He insisted most staff were happy with them but said there was no formal structure allowing them to request guaranteed hours.