BHS: asset strippers, chancers, and governance failures

A most damning parliamentary report on the sale and management of retail chain BHS—originally known as British Home Stores to customers of my age—was released on 25 July this year following an investigation into the scandal by the Work and Pensions Committee and the Business, Innovation and Skills Committee. It details a “litany of failures culminating in ‘at any cost’ disposal of company and pension deficit to [a] wholly unsuitable ‘chancer’.”

This is the first time that a parliamentary report has led to calls for someone to be stripped of his knighthood.

[T]he circumstances of the collapse of BHS were “a blight on the reputation of British business.”
Simon Walker, Director General of the Institute of Directors



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BHS was founded in 1928 and was bought by Sir Philip Green in 2000. In 2009, it became part of the Taveta group of companies, which is ultimately controlled by Lady Christina Green. On 11 March 2015, after years of underperformance, it was sold to Retail Acquisitions Limited (RAL), an entity owned by Dominic Chappell. Just over a year later, BHS went into administration on 25 April 2016 and now faces the prospect of being broken up to settle its debts.

The bankruptcy threatens the jobs of 11,000 employees. Due to a pension deficit of £571 million—the pension scheme was overfunded when the chain was acquired by Sir Green—20,000 current and former BHS employees face reductions to their pensions of up to 77 percent. And even these reduced pensions are currently set to be paid by the Pension Protection Fund (PPF)—which is supported by a levy on 6,000 other defined benefit pension schemes with 11 million members—unless Sir Green makes good on his offers to properly fund the scheme.

An initial attempt to rescue the BHS pension fund was made in November 2013. Named Project Thor, it was designed by Deloitte. According to the report, the Arcadia board (another of the companies owned and run by the Greens) “cited a variety of explanations for pausing Project Thor, ranging from Christmas to the Scottish independence referendum and instability in Ukraine.” The committee dismissed all of these as excuses: “The primary reason was Sir Philip Green’s resistance to TPR’s [The Pension Regulator] moral hazard requests. He did not wish to respond to requests for information regarding historic dividends, management charges, sale and leaseback arrangements, inter-company loans, and the use of BHS shares or assets as collateral for company purchases.”

As is hinted in the above list, the report details a long list of ways in which the Green family stripped BHS of both assets and profits. For example, the total dividends paid during the years of BHS’s profitability, 2002-2004, to other Green companies were double the profits made in those years. The other Green companies appear to be a complex web of entities, many with overlapping directorships, run as a personal fiefdom by the Greens, with many offshore interests and the majority of money flowing offshore to the ultimate beneficial owner of most of them: Lady Green.

“The complacent performance of Lord Grabiner as the non-executive Chairman of the Taveta group boards represented the apogee of weak corporate governance.”
BHS Report Authors



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In a letter written on 5 July by Lady Green to answer questions made by the parliamentary enquiry, the details of 19 companies are given, as well as claims that since either she wasn’t a director and/or her husband wasn’t and they were not directly involved in running these companies, all owned by the Greens, the companies were operating independently. In just a single example, several companies were involved in sale and leaseback arrangements of BHS properties that were ultimately incredibly profitable for Lady Green but not BHS. Many of these entities are incorporated in Jersey and the British Virgin Islands, not for their favourable tax regimes, claimed Lady Green but because they “are commonly preferred for their strong regulatory regimes and well-respected regulators and the size and competence of their professional communities.”  

When the decision to sell BHS was first taken, Sir Green had three conditions for the company to which he would sell:

That they inject their own equity

That they provide a credible retail “front man”

That they have sufficient working capital to keep the business afloat

In the end, none of these conditions were met; indeed both equity and working capital were provided subsequent to the deal by Sir Green himself.

The first buyer to be considered, says the report, was Paul Sutton, a bankrupt fraudster who was rejected only when Green found that Sutton was using Green's name as a reference in Monaco. Sir Green then moved on to Dominic Chappell, the eventual purchaser, who was Sutton’s former driver and business associate.

“In effect, Mr Chappell "had his hands in the till". His description of £2.6 million that he personally took, in addition to an outstanding £1.5 million family loan, as a "drip" in the ocean is an insult to the employees and pensioners of BHS that he let down.”
BHS Report Authors

Chappell, who had no retail experience whatsoever according to the report, ran Retail Acquisitions Limited (RAL). RAL approved the deal after it had received fairly pessimistic reports from law firm Olswang and accountant Grant Thornton advising that the risks for RAL were immense. While recognising that some warnings were made, commented the report: “They were nonetheless content to take generous fees and lend both their names and their reputations to the deal.” In addition, while Goldman Sachs was not “officially” part of the team of advisers, its name was liberally used as a “gatekeeper” and, said the report, “they had authority without accountability.” Finally, the Financial Reporting Council is currently investigating PwC’s role, another Taveta/Arcadia adviser, in stating that BHS was a “going concern.”

The enquiry has led the two committees to announce ongoing enquiries into the inadequacy of company law and corporate governance standards as they relate to private companies as well as into the future of occupational pension schemes.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more