Date: 28 October 2019
SPORTS DIRECT INTERNATIONAL PLC
("Sports Direct" or the "Company")
As reported in the press, Sports Direct has written to Rachel Reeves MP - chair of the Business Energy and Industrial Strategy Select Committee. The full text of the letter is set out below:
Dear Ms Reeves
We refer to the Select Committee this week where you heavily criticised the management of Thomas Cook Group plc.
You stated that none of Thomas Cook's current and former management have taken responsibility for its failure and were passing the buck, and not accepting any responsibility for any wrong doing, a situation we have come across directly ourselves as you well know.
Earlier this year I met with you and some colleagues on the BEIS Select Committee at the Houses of Parliament to discuss our concerns about the collapse of another once great British retailer, Debenhams plc. We explained in detail what we believe had gone wrong and why. We supplied you with documents evidencing aspects of what had happened. Yet so far as we are aware nothing at all has happened since - why?
At one level the situation with Thomas Cook is similar. But in reality the Debenhams scenario was far worse in the sense that the "loan to own" scheme that had been devised by the US based hedge fund Silver Point Capital was actually planned, designed and executed in conjunction with their professional advisers to take control of the company from the existing shareholders leaving them with nothing, this includes small independent shareholders for whom the money lost was material and life changing. It became a requirement of their scheme that their actions would lead to the business failing so that it could then be bought out of administration free from existing shareholders and unchallenged.
Despite those facts no one in Parliament seems to be sufficiently interested about the Debenhams failure. No one seems to be doing anything about it. It is very apparent that a head of steam is developing in the media and in the electorate in that they will not tolerate these sorts of situations any longer where businesses and advisors profit from playing the system at the expense of others. In many cases the professional advisors are of course sitting right at the heart of these schemes. Often they are paid huge sums in fees first, conveniently before the failure occurs. They are not held accountable for their actions.
Further to your comments this week that the audit profession was complicit in these corporate failures, we would agree with you. In particular holding onto irrecoverable, and indeed worthless intangible assets for years allowed Debenhams to carry on paying ludicrous levels of dividends (despite, as we mentioned to you, as the largest shareholder being very insistent that they reinvest the money in the business and not pay dividends) which absolutely contributed to its downfall and which was no doubt lead by its advisors, Thomas Cook had similar issues it appears with intangible assets not written down and dividends paid out.
We told you our view when we met that there really needed to be an effective and proactive "smell test" applied for corporate situations where it looked like something untoward might be happening. This would need to be backed by sufficient regulatory powers for the relevant regulator to act in real time by asking the advisors whether everything was in order or not (akin to the proactive immediate questioning of the Takeover Panel during listed transactions) and then properly and thoroughly investigate what has happened and duly hold any offenders to account.
We told you that when we had visited other regulators they told us specifically that they do not have the relevant powers to be able to take action (for example the FCA). In our meeting you said that in your view they did have all the necessary powers - which we have to say was our opinion too. There seems to be a very worrying disconnect if politicians are not aware of what regulators can and cannot do. If the regulators are correct that they do not have the necessary powers, then surely moves should be made to give them those powers urgently?
We now have three current examples - Debenhams, House of Fraser and Goals - where our business, and other shareholders, had no protection for its investments and still no-one does or cares enough to do anything about it . Rest assured I will not give up the fight to establish the truth despite an absence of any meaningful support from regulators and politicians.
Given your obvious engagement in the Thomas Cook situation can you please confirm that you will also now take immediate steps in relation to the Debenhams situation, as we had previously encouraged and invited you to do. It is clear to us currently that most politicians and regulators are only interested in their own PR, with attention on only those cases with the most public interest and impact such as Thomas Cook with customers stranded abroad or public infrastructure projects in chaos with the demise of Carrillion. There are cases which are just as bad if not worse on their own merits such as the deliberate wiping out of Debenhams Shareholders by hedge funds with the highly likely collusion of management, or simple but significant frauds missed through incompetence or ignorance of boards and their advisors such is the case with Goals.
We believe many politicians are more interested in furthering their own careers than in the public interest, we have Select Committees where MPs such as Tanmanjeet Singh Dhesi blatantly lie to the nation on TV, then retract in the proverbial 'small print'. We have MPs such as Iain Wright who can have conflicts of interest that parliamentary compliance committees have no interest in investigating appropriately. We have corporate failures of equal or worse malfeasance than Thomas Cook but because they won't attract the same brownie points they are not interested. This is the second time I have told you that you must do something. We want you, Rachel Reeves MP, to prove us wrong by properly investigating the likes of Debenhams and holding the wrongdoers to account as you appear to be doing in the Thomas Cook case.
We look forward to hearing from you as a matter of some urgency.
Sports Direct International plc
Tom Piper, Company Secretary
T. 0344 245 9200
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