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Britain's Debenhams receives Sports Direct challenge to restructuring

Shoppers walk past the Debenhams department store on Oxford Street in London

LONDON (Reuters) - British retailer Debenhams has received a challenge from former shareholder Sports Direct over a restructuring plan that wiped out investors but kept the company operating.

Debenhams is restructuring the chain using so-called company voluntary arrangements (CVAs), which allow retailers to avoid insolvency by offloading unwanted stores and secure lower rents on others and reach a compromise with creditors.

The plan gave creditors control of the company in May, at the expense of investors. Debenhams said on Tuesday it had received challenges to the CVAs from parties including Mike Ashley's Sports Direct.

"We believe the challenges to the CVAs to be without merit and will vigorously defend them," said Terry Duddy, Debenhams Executive Chairman.

"Given the overwhelming support for the proposals from creditors, including over 80% of landlords, this is an unnecessary distraction as we implement our restructuring plans."

Once the country's biggest department store chain, Debenhams was hit by a sharp slowdown in sales, high rents and ballooning debt. The restructuring plan will lead to the closure of 22 stores next year, putting 1,200 jobs at risk.

(Reporting by Kate Holton; Editing by Alistair Smout)