Poundland unable to buy new stock as fears over collapse grow

Poundland is unable to buy new stock to fill its shelves after being blocked by its owners from accessing cash in its bank accounts.

The discount chain is on the brink of collapse with one insider describing it as "running on fumes". It has until Thursday to secure a rescue deal.

About £50m has been frozen by its American owner Gordon Brothers, the BBC understands, meaning its 600 shops are running out of stock.

Pressure is building on Gordon Brothers, which bought Poundland for £1 last June, after the owner rejected a takeover bid that could have saved the thousands of jobs currently at risk. Gordon Brothers has been approached for comment.

Poundland has filed a notice of intention to appoint administrators, which protects it from its creditors until Thursday.

Access to funds was limited because of a tension between Gordon Brothers' dual role as both creditor and shareholder, a source said, but added they expected a relaxation of funds in the next two days.

Last week, Poundland boss Barry Williams told staff like-for-like sales, which exclude new store openings, were up 11.4% last week, which included Halloween, but said this was £1.5m ahead of budget.

He said the business made a profit of £18.1m in the year to September, which was a "strong recovery" from the previous year where the business made losses of £68m.

The latest annual accounts have yet to be audited.

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However, Gordon Brothers has painted a different picture of the business, saying the chain remains "challenged and vulnerable to any potential downturn in future trading".

It said it had provided significant funding to support the company's ability to trade since it acquired the business.

It has also made £18m, from a combination of debt interest payments and other fees and charges.

On Wednesday, executives from Gordon Brothers will appear before the Business Select Committee with MPs probing whether they are genuinely pursuing a solvent rescue of the business, which has 11,000 employees, and whether every realistic step is being taken to protect jobs and stores.

The session is being held in private given commercially sensitive discussions are still under way with bidders.

On Thursday, the 10-day moratorium to protect Poundland from its creditors expires, but if there is a prospect of a solvent deal, the deadline could be extended.

If not, Poundland is set to collapse into administration and could be broken up.

A source familiar with the sales process said London-based Xyra Group was making "significant progress" in its last minute bid to buy Poundland and could now be the front runner.

An extension of Thursday's deadline now seems an increasingly likely scenario. But such a case would be difficult to put forward if Gordon Brothers continues to block funding.

One observer remarked "if Gordon Brothers is going in front of that committee, you don't want to be giving the message we're pulling up the drawbridge".

Even if a deal is agreed to sell the business as a whole, there is no guarantee a new owner would not reduce the number of stores, but suppliers to Poundland would prefer that outcome to hundreds of sites being sold off to other retailers.

There has been interest from the likes of Poundstretcher, Tesco and B&M in picking up stores which could mean continuing employment for many workers.

The central issue is whether a piecemeal sale would protect more jobs than a buyer willing to keep Poundland trading as a national chain.