• Published

The future of Poundland hangs in the balance as the discount chain edges towards collapse, the BBC understands.

The retailer has filed a notice of intention to appoint administrators, which if approved by the High Court, will give the business 10 days breathing space to find a rescue deal.

Poundland's managing director Barry Williams wrote a memo to his 12,000 staff across its 600 stores in the UK and Ireland saying the US owner of the chain had limited Poundland's access to funding.

Gordon Brothers bought Poundland, which had been struggling, from the Polish retail group Pepco in June last year for a nominal £1.

But little over a year later it put the business up for sale.

Irish firm Martin Property Group (MPG) put forward a bid to take the business on as a going concern, which was the preferred option for management, but it is understood this did not meet Gordon Brothers' expectations.

Gordon Brothers wants to recoup a £30m shareholder loan it inherited from the previous owners as part of a its deal, but it is understood the Martin Property Group offer was for £5m, with the rest of the payment deferred.

It means Poundland is now heading towards an insolvency process.

Gordon Brothers could secure a new owner through what is known as a pre-pack administration.

But the most likely option for the business to be broken up and for parcels of stores to be sold.

A Gordon Brothers insider said this would allow creditors to recover funds. Gordon Brothers is the main creditor, and has made £70m of loans to the business.

The US investment firm's position is that current employees may be able to get employment with new store owners.

This type of sale process would let interested parties firm up offers.

Interested parties include Poundstretcher owner, Fortress, which according to one insider is interested to take on between 200 and 250 stores.

Another large retailer is understood to be interested in buying up more than 100 other sites.

More than half a dozen retailers, include Iceland, Lidl, and B&M, have expressed interest in Poundland's store estate.

• Poundland in rescue talks as owners seek buyer

  • Published13 October

Situation 'wholly avoidable'

However, there is a split between the owners and the management running Poundland, who described the situation as "unexpected, unwanted and wholly avoidable".

"As you all know, our sales are strong and our recovery is taking root. This business simply does not deserve to go into any kind of administration," said Williams, the chain's managing director.

He revealed that Gordon Brothers had limited Poundland's access to funds which help it run its day-to-day business in a message to his staff this week.

"I'm disappointed to have to tell you that Gordon Brothers have given instructions that restricts our access to funds that we would, in normal circumstances expect to access fully under our existing loan agreement," he added.

In the memo, seen by the BBC, Williams said the offer from Martin Property Group was a "fully funded, ready to go bid that would have kept the business intact and able to continue the remarkable progress we've made".

Three independent directors who were appointed earlier this month to help oversee a sale have resigned with immediate effect after disagreeing with Gordon Brothers' decision not to accept MPG's solvent offer.

If its notice to appoint adminstrators is approved, the management team will be given breathing space to look for a rescue deal.

The move creates a 10 day pause on creditors calling in debts. Poundland's main creditor is its owner, Gordon Brothers.

The BBC understands Gordon Brothers has lined up AlixPartners as administrators.

Gordon Brothers has been approached for comment, but in an earlier statement it said while MPG was identified as the "preferred bidder" by Poundland's management team, "attention must now turn to other active bids".

"As well as interest from buyers for the whole business, the sale process has also surfaced a number of formal and indicative offers for significant viable parts of the business from established retail operators," they added.

"These options will now be objectively evaluated, with a view to minimising uncertainty for Poundland's people and all relevant stakeholders."