The inquiry by MPs into the collapse of BHS last month began on Monday, focusing the spotlight on Sir Philip Green, the retail billionaire who sold the chain for £1 last year.
Green and his companies put up another entity as a guarantor for the pension scheme that couldn’t meet the required capital to reduce pension insurance payments; they suggested a 23-year recovery plan for the pension scheme, more than double the average; and then sold the company without telling the Pensions Regulator, which learned about the sale in the newspapers.
The regulator opened an immediate anti-avoidance case that it is still pursuing to try and claw back money from Arcadia and Sir Philip to meet the BHS pension plan shortfall.
While the regulator wouldn’t comment on the specific case, CEO Lesley Titcomb said these cases are generally opened when someone or a company is “considered in some way of walking away from their contributions.”
BHS collapsed last month with a pension plan deficit that the state-backed Pension Protection Fund, known as the Pensions Lifeboat, must now take on. There are an estimated 20,000 members of the pension plan.
Green bought BHS in 2000 for £200 million and took around £400 million in dividends out of the business. But it has faded dramatically in recent years and last year he sold it to an inexperienced former racing driver for £1 last year.
MPs heard evidence from Alan Rubenstein, CEO of the Pension Protection Fund, Pensions Regulator CEO Lesley Titcomb, and the regulator’s Director of Case Management Nicola Parish.
Here’s a summary of what we learned from the joint session of the Work and Pensions Select Committee and the Business Select Committee, which focused on BHS’ pension deficit:
- The state-backed Pension Protection Fund (PPF) will have to fund a shortfall in the pension plan of BHS of between £250-300 million;
- The PPF, known as the Pensions Lifeboat, doesn’t expect the levy it charges on solvent funds to go up as a result of taking on BHS’ liabilities;
- The PPF and regulators had concerns about the BHS pension plan as early as March 2012;
- Around that time, Arcadia, Sir Philip Green’s retail company, put up another group company as a “guarantee” for BHS’ pension scheme in a bid to reduce the PPF levy that it had to pay — a little like an insurance premium;
- But when the guarantee was checked a year later, PPF CEO Alan Rubenstein says it “seemed incapable of providing a guarantee of £200 million.” The guarantee was simply not renewed;
- The company, Davenbush, owns and leases BHS’ property back to it. It had assets of £22 million in 2012 and made a loss of £20,000 that year;
- Rubenstein says of the guarantee process: “We felt it was abused. That was not the only case of a company providing a guarantee that couldn’t actually fulfil that guarantee”;
- BHS suggested a 23-year recovery plan to get its pension plan on track. The usual length is around 8 years. Rubenstein agreed that this was highly unusual. Lesley Titcomb, CEO of the Pensions Regulator, says it was “a-typical”;
- Titcomb says: “We learned about the sale from the newspapers… They discussed a number of propositions with us. The next we heard they’d sold the business.”
Overall, both Arcadia and the Pensions Regulator came off badly in the sessions. Green’s Arcadia appeared to be pulling every trick in the book to lower its bill on the pensions plan.
When asked about putting up Davenbush as a guarantee for the Pension plan, PPF’s Rubenstein told MPs: “People don’t like paying insurance schemes so they do everything they can to reduce them.”
But he added: “Many of the major accountancy firms were involved…. BHS were not particularly a special case.” The loophole Arcadia used has sine been closed, Rubenstein says.
Green has complained of a “trial by media” in the wake of the BHS collapse. But Titcomb underlined the fact that Arcadia and Sir Philip have a serious case to answer when it comes to meeting the shortfall in the pension plan. She told MPs: “I do not disperse levy payers money without due consideration. We’ve been going for a year and we’re still going.”
The regulator has 70,000 documents to pour over in the case but Titcomb says it hopes to have made significant progress by the end of the year.
At times, the session was frustrating as Titcomb’s investigation limited what she could talk about. Asked about Sir Philip and his family taking dividends out of the company, Titcomb said: “We’d rather not go into that. It’s germane to our open investigation at the moment. I’d rather not go into that.”
Parish, sitting alongside her, added: “Certainly whether dividends had been paid out is something we’d look at and any plans for future dividends.”
Sir Philip took £400 million of dividend out of BHS in the early years of his control of the department store.
On the sale of BHS for £1 last year, Titcomb says: “We would have gone and asked them what is the provision for the pension scheme in this situation. In typical of looking at such situation we will take into account the strength of the new owner and the record of the main acquires.”
BHS was sold to a vehicle run by Dominic Chappell, a three-times bankrupt former racing driver with no former retail experience.
But as well as turning up the heat on Sir Philip Green and Arcadia, the session showed up the shortcomings in the current pensions system. The regulator and PPF knew of serious shortfalls in the BHS plan in 2012 but little progress appears to have been made in the three years before its sale.
Richard Fuller MP told Titcomb at one point: “You don’t sound like much of a regulator.” She replied, visibly annoyed: “We have to operate within the framework provided to us.”
Frank Field, the MP chairing the joint session of Select Committees, said more charitably: “The more these two sessions have gone, it seems to one member, me, that you’ve got an impossible task.” He suggested breaking up the roles of making a recovery plan, suggesting whether it’s advisable, and conducting an inquiry into abuses.
The Select Committee hearing will continue its inquiry over the coming months, with Sir Philip Green expected to appear before MPs in June. As well as the Select committee and Pensions Regulator investigations, BHS’ collapse is being looked at by the Insolvency Service and the Serious Fraud Office.