Business Secretary Contacts Poundland Owner as Fears of Administration Grow

The business secretary has written to the owner of Poundland amid growing fears that the discount retailer could collapse into administration, a development that threatens to overshadow John Healey's first budget as chancellor.

Sources said Gordon Brothers, the US investment firm that bought the 600-store chain for £1 last summer, appears poised to bring in administrators. Jonathan Reynolds has written to the firm to find out where matters stand at a company that employs 12,000 people.

Earlier this week, Gordon Brothers turned down the only bid to take over the whole group as a solvent business. The group includes the 50-store Dealz chain in Ireland, and the offer came from Northern Ireland's Martin Property Group. It is understood Gordon Brothers could file a notice of intention to appoint AlixPartners as administrator as early as Wednesday. Three independent directors brought in to help oversee a sale have resigned amid unease at the move toward insolvency.

Barry Williams, the boss of Poundland, told staff in a letter that the rejection of the Martin Property Group bid was "unexpected, unwanted and wholly avoidable". An improved offer from the Northern Irish company has not been ruled out.

Sources said, however, that the bid fell well short of what Gordon Brothers hoped for as it seeks to recover the £30m in debts it took on with Poundland. The offer is understood to be worth more than £15m, with only part of it paid upfront. One industry source said suppliers were already holding back deliveries, which makes it harder for the group to secure a rescue deal.

Industry insiders said Gordon Brothers wanted to act quickly because Poundland is well stocked ahead of the busy Christmas period. Selling off stores and stock in parcels would deliver the best return for the restructuring specialist, they said. "Gordon Brothers has a simple choice," one source said. It could accept a Martin Group offer worth at least half of the £30m, "or get significantly more than that by busting the business". The source added that only a sense of moral or public relations duty could change that.

Reynolds has asked his chief strategic business adviser, David Bickerton, to "establish the facts", as first reported by the Financial Times. He is understood to have contacted Gordon Brothers but not Poundland's management, which had backed the Martin Property Group bid. A business department spokesperson said the situation would be a concerning time for employees, their families and communities across the UK, but added that it was a commercial process and ultimately a decision for the owners, so further government comment would be inappropriate.

Gordon Brothers is understood to believe that breaking up the chain could raise as much as £30m and preserve more jobs over the long term. As many as eight parties could be interested, including the US investment firm Fortress, which owns Poundstretcher, and the owner of The Range. B&M is thought to want at least some outlets.

One industry insider was sceptical, asking: "Who is going to take on 600 high street stores?" He predicted that up to 500 could be left without a buyer in a break-up, causing significant job losses. Gordon Brothers has been approached for comment.