Poundland's future hangs in the balance as chain edges towards collapse

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

The retailer's bosses are filing 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.

The move comes after 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 chains' US owner had limited Poundland's access to funding.

It is understood the firm's owner, Gordon Brothers, wants to break up the firm, with rivals Poundstretcher, B&M and Lidl interested in potentially buying up stores.

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

Poundland was founded in 1990 with a store in Burton-upon-Trent, and has around 20 million customers per year.

It sells low-cost everyday products, general merchandise and fashion on local high streets.

Poundland in rescue talks as owners seek buyer

A Gordon Brothers insider said breaking the firm up would allow creditors to recover more money, and that this process would ultimately offer the best outcome for staff. The US investment firm's position is that current employees may be able to get employment with new store owners.

If this type of insolvency happens, it would let interested parties firm up offers.

These include Poundstretcher owner, Fortress, which according to one insider is interested in taking 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.

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," the chain's managing director Williams said in a message to staff this week.

He revealed that Gordon Brothers had limited Poundland's access to funds which help it run its day-to-day business.

"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 resigned with immediate effect after disagreeing with Gordon Brothers' decision not to accept MPG's solvent offer.

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

Gordon Brothers previously said while MPG was identified as the "preferred bidder" by Poundland's management team, "attention must now turn to other active bids".

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

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