DEBENHAMS was preparing to enter into administration as the department store battles for its future.

Sportswear firm Sports Direct said that its latest £150 million backing offer for the retailer had been rejected, putting the high street retailer on course for a probable administration.

A source connected to Debenhams said that for the company, which has 2 stores in Glasgow, the most likely outcome is now the announcement of a pre-pack administration arrangement.

This move would mean “game over” for Sports Direct’s current ambition to put money into the company, the source said.

The latest package promised included an offer to underwrite a £150m rights issue, and there was a condition that Sport Direct chief and former Rangers shareholder Mike Ashley be made chief executive of Debenhams.

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In a statement to the market on Monday afternoon, Sports Direct said its proposal had been rebuffed and called for the Debenhams board and its lenders to engage in further negotiations over the chain.

It was claimed Mr Ashley was previously given a deadline of 5pm on Monday to fulfil one of two conditions to prevent Debenhams from falling into the hands of lenders.

If neither was fulfilled, it was expected the retailer is likely to go into administration, wiping out Sports Direct’s stake and all other shareholders.

Over the weekend Mr Ashley was again vocal over the running of the stores, criticising Debenhams executives.

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Mr Ashley has a near-30 per cent stake in the department store but faces the wipeout if it presses ahead with a £200m refinancing plan announced in March.

Sports Direct said that while it “continues to actively evaluate all possible options to support Debenhams, it wishes to clarify that, as a technical matter, were it to complete, the equity issuance would be an alternative transaction to the possible offer and vice versa”.

The Newcastle United owner made the now-rejected offer on Friday, saying it would form part of a “comprehensive refinancing” of Debenhams and would be contingent on the retailer’s lenders agreeing to write off debt.

Sports Direct was continuing to consider a conventional takeover, priced at 5p per share.

The source said: “If it [Debenhams] does go into administration, this is only the next step on the road to refinancing the business before you get onto the next step of restructuring the business and hopefully end up with a business that is smaller but it has a future.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Mike Ashley hasn’t yet thrown in the towel in his pursuit of Debenhams.

“In theory a deal could be struck, but relations seem far from cordial, and the Debenhams management look set on giving the lenders control of the high street chain.

“The job isn’t an easy one, but they need to balance the interests of shareholders, lenders and employees.

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“So far they haven’t given a great deal of detail as to why Sports Direct’s proposals have been kicked to the kerb, while lenders have been handed the keys to the company.

“If the protagonists in this drama could find a way to preserve some value for shareholders, while keeping the commercial wheels turning, that would probably satisfy all parties.”

He also said: “The difficulty is that as part of its recent refinancing, Debenhams has already agreed to terms which means lenders approach any negotiations from a position of strength.” Shares were down more than 10% at 1.83p.

Debenhams declined to comment.