Ashley, who is also the majority shareholder of Sports Direct, launched a coup last week to take over running Debenhams, seeking to remove most of the board and install himself in an executive role, while willing to step down as chief executive of Sports Direct.
Ashley, one of Britain's most famous and unorthodox businessmen and the billionaire owner of the Newcastle United soccer club, made his fortune from building retailer Sports Direct. More recently he has snapped up stakes in other chains hit by the rapid shift online and weak consumer spending.
Sports Direct owns nearly 30 percent of Debenhams, once Britain's biggest department store but now struggling with net debt of almost 300 million pounds.
Shares in Debenhams, which have lost 97 percent of their value since a peak in 2015, closed down 5.6 percent to 3.2 pence.
Debenhams on Monday said it was in advanced talks with lenders for additional loans of about 150 million pounds.
Sports Direct, in the proposal it made on Wednesday, said it would lend the same amount on similar terms but in return would require about 5 percent of new shares, on top of an earlier demand to make Ashley the chief executive of Debenhams.
If the 5 percent share issue and related conditions are approved by Debenhams' independent shareholders, the 150 million pounds loan would be guaranteed to be interest-free, Sports Direct said, adding that if not approved, the loan would bear interest at 3 percent.
Sports Direct's stake in Debenhams would be increased to 35 percent if stakeholders approved the new deal.
Under UK Takeover Panel rules, an investor with a stake of 30 percent or more must make a takeover bid for the rest of the company, but this can be avoided with a "whitewash agreement" that would have to be approved by independent shareholders.
Debenhams declined to respond immediately.
Debenhams also rejected complaints from Sports Direct about an earlier disclosure to the market ahead of a profit warning this month as it edged nearer to a restructuring.
Sports Direct wrote to Debenhams directors before the profit warning, saying that comments made eight weeks earlier that cost savings were helping compensate for difficult trading were "at best impossibly optimistic or at worst deliberately misleading," according to a report in the Financial Times.
"We reject these unfounded and self-serving complaints," Debenhams said.
Analysts expect that the restructuring announced by Debenhams, which has 165 stores in Britain, will include a share issue and an acceleration of its store closure plans.
(Reporting by Justin George Varghese in Bengaluru; Additional reporting by Paul Sandle in London; Editing by Elaine Hardcastle and Leslie Adler)
By Justin George Varghese