BHS goes under - as planned

One of the UK’s iconic retailers finally has called in the receivers with 11,000 workers at BHS now facing a bleak future.

The chain, formerly part of Sir Philip Green’s Arcadia Group, was sold to Retail Acquisitions for £1 last year in a move that has enabled Green to avoid a BHS pension deficit of €571 million.

Now that the Pension Protection Fund will be picking up the tab, former and future BHS retirees at least will receive retirement payouts albeit at a lower level than they had worked towards.

There have been a reported 30 enquiries to buy BHS out of administration since reports surfaced that the business was going under.

The directors have  called in Duff & Phelps to handle the winding up or disposal of BHS that has debts of around £1.3 billion.

In a statement Duff & Phelps reported that, "The group has been undergoing restructuring and, as has been widely reported, the shareholders have been in negotiations to find a buyer for the business. These negotiations have been unsuccessful.

"In addition property sales have not materialised as expected in both number and value. Consequently, as a result of a lower than expected cash balance, the group is very unlikely to meet all contractual payments. The directors therefore have no alternative but to put the group into administration to protect it for all creditors. The group will continue to trade as usual while the administrators seek to sell it as a going concern."

Mike Ashley’s Sports Direct had been in talks to buy the business, but negotiations faltered over the cost of plugging the pension deficit. By entering administration the pensions liabilities will be deferred to the Pension Protection Fund, making the prospect of buying the group a more attractive one.

Had Arcadia kept the group, it would have been liable for the pension deficit and easily could have funded it.

If no buyer is found, the chain could close its doors and thousands of jobs would be lost, making it the biggest retail collapse since Woolworths in 2008. BHS was founded in 1928 and has 164 stores throughout the United Kingdom, and 74 international stores across 18 separate territories

Retail Acquisitons' Dominic Chappell, a former bankrupt and racing car driver, said in the letter to staff, “It is with a deep heart that I have to report, despite a massive effort from the team, we have been unable to secure a funder or a trade sale.”

Chappell added, "I would like to say it has been a real pleasure working with all of you on the BHS project, one I will never forget, you all need to keep you heads held high, you have done a great job and remember that it was always going to be very, very hard to turn around."

Alarm bells rang across the City when Green sold the chain to Retail Acquisitions as many had expected that the loss-making business would be broken up and sold off.

When the acquisition was announced, the chairman of Retail Acquisitions, Keith Smith, a former director of the corporate finance firm Nabarro Wells, said,

“We are convinced that with strategic and focused support, we will return BHS to profitability and safeguard the workforce.”

His words were echoed by Sir Philip Green, “The business is handed over in a sound financial position with significant cash balances and banking facilities in place. I am confident Retail Acquisitions have a platform to grow the business and return it to profitability.”

This turnaround seemed to rely on the sale of property assets and property agencies were appointed but gagged with non disclosure agreements.

“The pension deficit, which was inherited, is undeniably a challenge but one that is also being reviewed and addressed in a calm and professional fashion,” a spokesperson for BHS commented.

The same BHS spokesperson said at the time of the sale to Retail Acquisitons that, “It is very much business as usual and BHS expects to be able to announce some positive developments in the near future.”

'Business as usual' involved hanging on to the much of the failed BHS management team, while the new owners worked out a way of stripping money from the company via a hefty loan from BHS to its new parent and a further £75 million secured on BHS properties.

Retail Acquisitions’ directors include former Formula 3000 racing driver and entrepreneur Dominic Chappell, Keith Smith, lawyer Edward Parladorio, and Lennart Henningson, a former senior adviser for HSN Nord Bank. They have shared at least £25 million in payments from BHS in their 13 month ownership.

Chappell has been made personally insolvent three times – twice through bankruptcy and once through an individual voluntary arrangement. His Island Harbour Holdings marina development on the Isle of Wight went into administration in 2009.

Retail Acquisitions took an initial £8.4 million chunk out of the business while the ink dried on the Green deal, the implausible reason given was that the money was for ‘professional fees’ on the £1 deal.

Green certainly was keen to sell BHS and the billionaire retailer wrote off a £200 million loan and lent the business £40 million before it was sold off for a quid. His problem was the pension deficit and by selling the business he technically is absolved from being held responsible for the pension fund which, when he took over the business in 2002, showed a £5 million surplus.

Between 2002 and 2004, according to a report in Private Eye (March 2016), Green controlled family companies received more than £400 million in tax free dividends as BES, like Arcadia Group, is controlled from Monaco by Green’s wife.

Even after £240 million in loans and write offs, Green’s offshore complex of companies have emerged ahead as dividends, bond repayments and interest, plus property rental income and the final sale price all adding up to around £745 million, or £586 million according to the Guardian, more than enough to fund the pension gap.  

The rich get richer, the Pension Protection Fund picks up the pension liabilities and the interim owners of BHS have escaped with whatever money they have managed to extract from the once proud retailer - around £25 million in 13 months. As for the staff, who cares? The owners certainly don't.

Can the Pension Protection Fund go after Sir Philip Green for the moeny? In a word - yes. But don't hold your breath as these cases are numbingly protracted affairs.

The pension regulator said it was "undertaking an investigation into the BHS pension scheme to determine whether it would be appropriate to use our anti-avoidance powers." It has the power to pursue those "deliberately atempting to avoid their pension obligations." Whether it will take Green to court remains to be seen.

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