Bulletins | December 20, 2016

BHS: Where are we now?

In the Summer and Autumn 2016 In Counsel update and the May 2016 Pensions Bulletin we examined the well-publicised BHS pensions debacle. Since then, a considerable amount of time, effort and money has been spent in trying to reach a solution to the problems left behind after BHS’s collapse, not least the underfunded pensions. As the curtain came down on 2016, were we any closer to an acceptable solution for all stakeholders?

To recap…

Sir Philip Green acquired BHS in 2000 for £200m. In 2002 the company became part of the Arcadia group (which owns brands such as Topshop, Miss Selfridge and Dorothy Perkins). In the years following the acquisition by Sir Philip, BHS performed very well with profit before tax peaking at £102m over the year to 27 March 2004.

However, over the next few years profitability declined – changes in shopping habits, the global economic downturn and competition from discount retailers appear to have contributed to BHS’s woes during the early noughties. The last time the company recorded a profit was in the year to 29 March 2008 and deficits recorded on its balance sheet in respect of its two defined benefit schemes (the BHS Pension Scheme and the BHS Senior Management Scheme (the “BHS Schemes”)) have increased significantly in recent years. In the year to August 2014, the company posted a £21m loss while press reports have suggested that 800,000 shoppers have abandoned the retailer since 2009.

In March 2015, BHS was sold to Retail Acquisitions Limited, owned by Dominic Chappell, for a nominal £1. The BHS Schemes entered a Pension Protection Fund (“PPF”) assessment period in March 2016 following a company voluntary arrangement. This failed to save the employer, which went into administration on 25 April 2016, putting 11,000 employees’ jobs at risk.

On 27 April 2016, the Work and Pensions Committee announced an enquiry into the collapse of BHS and the sustainability of the PPF. This subsequently joined with a Business, Innovation and Skills Committee enquiry into the sale and acquisition of BHS.

Committees’ findings

The Work and Pensions Committee and Business, Innovation and Skills Committee published their joint Report into the collapse of BHS on 25 July 2016. Key findings were as follows:

  • there were significant shortcomings in the corporate governance model underpinning the Green family empire and how it was run. These weaknesses contributed to BHS’s demise, including the failure to address the pension deficit and the failure to challenge Retail Acquisition Limited’s proposal to buy BHS in 2015;
  • dividends paid to BHS shareholders (the Green family) during the early years of ownership exceeded profits generated;
  • BHS’s tangible fixed assets diminished in value, from £430m in 2000 to £183m in 2014. Improvements in profitability during the early years of the Green family’s ownership seem to have been achieved through cost cutting and the sale of property. There was no evidence of improved market share or any significant investment that might have been expected from a leading UK retailer;
  • Dominic Chappell was deemed to be an unsuitable purchaser for a business such as BHS. His lack of experience of running a retail business or a company on a similar scale led the Committees to conclude that it was “inconceivable that someone with Sir Philip Green’s experience seriously considered otherwise”;
  • Retail Acquisition Limited’s ownership of BHS was a disaster. BHS was used for personal gain as evidenced by the £11m charged by Retail Acquisitions Limited to BHS in the form of salaries and fees;
  • whilst the Pensions Regulator is not to blame for BHS’s demise, it does attract criticism for its lack of proactivity and tendency to react slowly; and
  • professional advisers were not without fault. The lawyers, actuaries, accountants and banks involved all came in for criticism in their handling of matters.


In June 2016 Sir Philip Green told the Committees that he would “sort” the problems facing the BHS pension. However, despite talks taking place behind closed doors, no deal has been forthcoming.

In early November 2016 the Pensions Regulator sent warning notices concerning the BHS debacle to Sir Philip Green, Dominic Chappell and Retail Acquisitions Limited. The warning notices each extend to over 300 pages and result from the “complex investigation” carried out by the Pensions Regulator since it initiated its anti-avoidance investigation in relation to BHS in March 2015. In the notices, the Regulator sets out the arguments and evidence it says support the use of both its contribution notice and financial support direction powers following the sale of the BHS business in March 2015 and its subsequent insolvency.

Chief Executive at the Regulator, Lesley Titcomb, commented:

Our decision to launch enforcement action is an important milestone in our work to attain redress for the thousands of members of BHS schemes who have been placed in this position through no fault of their own. Issuing warning notices at this time reflects the outcome of our investigations and that we are yet to receive a sufficiently credible and comprehensive offer in respect of the BHS schemes. We continue to pursue the best deal for members of the BHS pension schemes. If parties wish to approach us with settlement offers, that course remains open to them.”

In response, Green said he had already provided the Regulator with a “credible and substantial proposal, with evidence and bank confirmation of cash availability, which would prevent the scheme from entering the Pension Protection Fund“; he also said he had spoken to the chairman of the trustees who was “supportive of the proposal“.

WB Comment

There is obviously mileage left to run in this saga.

Further negotiations are a given but an expensive and protracted courtroom battle over the pension deficit could be looming with reports of both parties preparing their cases.

What is certain is that the collapse of BHS and the effect on its pension schemes are a reminder of how a company’s financial future can be dictated by its pension scheme.