JJB shares plunge over loan row

The future of JJB Sports has been brought into question as shares in the company collapsed to just 23p yesterday after the simmering row over a loan to the chairman came to the boil. Sir David Jones received a personal loan of £1.5m in Octover 2007 from Mike Ashley, the owner of the group's rival Sports Direct, a move which has brought his leadership of the chain into question.

Jones was brought in to rescue the sports chain from the brink of bankruptcy and has a proven track record of turning businesses around, with past successes including Next and Morrisons. However this transaction brings a number of issues of conflict of interest to the fore, with Ashley also a shareholder in JJB until recently and accusations being levelled at Jones of asking Sports Direct executives to keep the loan secret, claims which he denied through his spokesman. The money was used to invest in a company called Advanced Network Technologies, of which he is chairman and his son is a director.

In addition questions are now being asked about the timing of the news, over a year and a half after the loan was made, just as JJB prepares to go cap in hand to investors for funding to ensure its continued survival. The company needs cash after seeing business slump in the downturn and is planning to raise £50m in capital to plug the gap in its finances.

The board of the beleaguered company gave its full backing to Jones, saying it was aware of the loan. However many view the affair as highly irregular and potentially damaging for both chairman and JJB itself.

WHAT THEY ARE SAYING:

Nils Pratley in the Guardian: "It doesn't matter if the money was used for investment in an unrelated private company, as Jones's spokesman says. Putting himself personally in debt to Ashley while a director of JJB Sports was stupid. Jones would hardly sanction (one hopes) members of JJB's staff making similar financial arrangements with a competitor. In ordinary circumstances, JJB's shareholders would expect his resignation."

Financialadvice.co.uk: "The future of the group is certainly at the centre of much speculation at the moment although there are very few people who believe it will eventually go out of business. Whether the directors decide to issue further shares, as appears likely, or dispose of non-core assets to increase working capital for the core business remains to be seen. However, whatever is decided is likely to be put into practice very soon."