Are we sure The Guardian understands this business stuff?

Sports Direct, the FTSE 100 retailing giant controlled by the billionaire Mike Ashley, stripped prime assets out of its stricken USC fashion subsidiary in the weeks before the chain collapsed, an investigation by the Guardian can reveal.

OK, what assets?

USC went into administration on 13 January 2015, but the Guardian has obtained documents showing that Sports Direct transferred leases of some USC stores to another wholly owned Sports Direct subsidiary, Republic, during November and December 2014.

Isn’t a lease more normally seen as a liability, not an asset?

8 thoughts on “Are we sure The Guardian understands this business stuff?”

  1. Rather depends on the terms, relative to market rent. Given that it’d be a criminal offence if it were at under-value, I somehow doubt that was the case. And I say that as an NUFC fan who’d be delighted to see Ashley locked up tomorrow!

  2. Well it’s an asset paired to a liability. I think we can assume asset on net if they voluntarily took ownership of them

  3. Tenants in rent controlled apartments consider their leases so valuable they often retain ownership of them for decades after they die.

  4. The right of possession is an asset, and the obligation to pay rent is a liability, both if and only if the lease is classified as a finance lease.

  5. Obviously they thought theses were good sites so represent an asset to the company in a general sense, had it been packaged up as a going concern their prime sites would have been factored in to any valuation.
    From a straight accounting point of view they are a liability related to an asset so net value could have been low.
    From a winding up point of view the right to sublet or transfer the lease at premium could be an issue as it may be removing potential assets from the administrators control.

  6. Well, if these are shops that USC were renting and now SD are renting I assume that the landlord’s agreement would be needed and it makes sense for the landlord to swap a tenant about to go bust for one able to pay rent.

    How is it removing potential assets from the administer? What asset? The obligation to pay rent?

    Suppose USC hadn’t transferred the leases. So when USC finally go into administration in January 2015 they most likely owe a couple of months extra rent.

    I’m with Tim on this one. The Guardina story is nonsense

  7. Andrew,

    I understood the point people were making above as being about current market rent being more than that being paid out on the lease. And the Graun did use the phrase “prime assets”.

    On the basis that the retailer was no longer going to use the space (due to administration), it might be a net asset (due to the lease charge being low). ie an old lease (outgoing) for £50K, (prime) space could be sub-let at £100K, hence a potential £50K profit. If that asset (the right to use the space) / liability (lease) was transferred away from the administrator without the administrator receiving a premium, then yes the story “might” have legs.

    btw, I have no idea what the actual facts were – ie how prime the space was versus the respective lease charge, simply trying to understand how the Graun might have not been talking bollocks for a change…

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