Close to the rocks: Sir Philip Green and BHS

A year later, BHS — to adapt his analogy — is sailing close to the rocks.

Last Tuesday a Peterborough clothing supplier called Tango Group International filed a winding-up petition against the chain in the High Court. Although the dispute was settled quickly — BHS paid Tango’s £15,000 debt the same day, a source said — it hinted at the stress the company is under.

On Thursday evening, BHS was forced into an early announcement of a controversial insolvency process known as a company voluntary arrangement (CVA) after news of the plan leaked. The retailer said it would ask landlords for rent cuts on more than half its 164 stores and threatened to close up to 40 shops, putting thousands of jobs at risk, unless there were “substantial” reductions.

BHS has until March 23 to secure the backing of 75% of its creditors for the CVA. The alternative is bleak: without a radical restructuring, the 88-year-old high street stalwart faces almost certain collapse.

At 9.30am on Friday, BHS’s boss addressed several hundred staff at the Marylebone Road HQ to deliver more bad news. Darren Topp, who has been with the company for eight years, said there would be 150 job losses at the head office and 220 in stores — not counting redundancies that might come through shop closures.

Later that day he told The Sunday Times the CVA was “an essential step to reset the business and secure a successful future”. “For too long, we have been hampered by leases in a minority of our stores that are long term and substantially in excess of market rates,” Topp said.

The public statements barely mentioned BHS’s pension fund, which looks after the retirement savings of more than 20,000 current and former employees. The fund is at the heart of controversy over Green’s £1 sale of the business.

The 63-year-old tycoon took more than £400m from BHS during his 15-year ownership — paid as dividends to his wife, Tina. She lives in the tax haven of Monaco, where Green keeps his huge yacht, Lionheart. Despite that, he sold BHS without making a lump-sum contribution to reduce its gaping pension deficit.

On a basic valuation, the shortfall between the scheme’s assets and liabilities stood at £207m in 2014. However, on a “full” or “buyout” basis — which takes into account the cost of securing members’ benefits with an insurance company — the deficit was £452m in 2012, the last triennial valuation. A newsletter circulated to members in December said 2015’s full valuation was likely “to show a decline in the funding position” due to a shift into less risky but lower-return assets.

The buyout valuation is what will concern the Pensions Regulator and the Pension Protection Fund (PPF) now the retailer is at risk of going bust. The BHS fund is due to enter the PPF — a “lifeboat” for schemes whose parents get into trouble — as part of the voluntary arrangement. The PPF generally pays full pensions to those who have retired, but reduces by 10% the payouts for those who retired early or are still in work and caps them at £32,761 a year.

Green’s earlier attempts to sell BHS to suitors such as the South African billionaire Christo Wiese and Apollo, an American hedge fund, fell down because he was unwilling to provide a “dowry” or lump sum towards the pension fund. His deal with Retail Acquisitions , a group of businessmen led by Dominic Chappell, a former racing driver and two-time bankrupt, amazed onlookers for that reason.

“£1 is way too much for that business,” said someone at the time, who added that it was worth “about minus £300m”.

However, if the tycoon thought he had washed his hands of responsibility by selling, he was mistaken. Green now faces paying tens of millions of pounds to ease the pension deficit after pressure from the regulator and the PPF. He is understood to have offered about £80m — £40m cash and £40m in the form of a charge Arcadia holds against certain BHS assets.

Dominic Chappell, whose Retail Acquisitions group bought BHS, has twice been declared bankrupt

ISLE OF WIGHT COUNTY PRESS

The development is deeply embarrassing for Green. It comes after a year of criticism over the deal, which has tarnished his reputation as the king of the high street. Green once used BHS as his stepping stone to the big time. It gave him the means to take over Arcadia and make two hostile bids for Marks & Spencer.

John Ralfe, an independent pensions expert, said: “This deal is coming back to bite Sir Philip Green. He was wrong to think that by selling BHS he was, with one bound, free of its huge pension problems.”

ISLAND Harbour Marina features a collection of luxury apartments with berths on the Isle of Wight. It was the scene of Chappell’s last British business venture before BHS and it ended ingloriously. The development went into administration in 2009. Anglo Irish Bank, Chappell’s lender, was owed £24m — a burden later taken on by Irish taxpayers.

After Green sold BHS last March, The Sunday Times investigated Chappell’s chequered past. A series of articles revealed how he had been personally insolvent in the past. He has been through an individual voluntary arrangement and two bankruptcies. He has received numerous county court judgments.

They also reported how he had been introduced to the BHS deal by Paul Sutton, an on-off business associate and a convicted fraudster. Sutton’s reputation was so toxic that Paul Budge, Arcadia’s finance director, demanded a signed declaration stating he would have no ongoing connection with BHS once Chappell’s consortium bought it.

BHS’s management team — led by Topp — is well regarded but the findings raised serious questions over Chappell’s role as an owner responsible for 11,000 employees and more than 20,000 pension savers. At the time, he admitted he had “really cocked up a couple of things on the way through”, but said: “I’m an entrepreneur: we’ve been involved with businesses.”

This weekend, Chappell, 49, said he was committed to steering BHS through its CVA and turning the chain around. He said there was “a very clear strategy on how we get through this — all we are asking from the landlords is to do their bit”.

“The key goal for us is to sort out the landlords on the over-rented properties,” he added. “That’s what we’ve been trying to do every which way we can, and we’ve only had a very few that have come to the table so far — all the rest have pissed me around unmercifully for eight months.”

BHS is saddled with expensive rents and long leases on many stores, some as a result of sale-and-leasebacks by Green after he took it private in 2000. In Clydebank, for example, it is tied into a rent of £440,000 a year until 2103 when the local market rent is £240,000. In Ayr, BHS pays £530,000 a year versus a market rent of £350,000, and in Monks Cross , York, it is £830,000 against a market rent of about £500,000.

“This company has had both hands tied behind its back,” said a retail consultant. “If you can untie them, it’s got a much better chance of survival.”

ON A warm evening last July, grey-suited City figures queued with excitable twentysomething women outside the Freemasons’ Hall in Covent Garden. It was the 10th anniversary of the Fashion Retail Academy, founded by Green, and the billionaire was about to lay on quite a show.

Inside, Tony Blair gave a speech hailing Green’s “school of life” credentials. The tycoon spoke himself — his London accent unusually softened — thanking industry friends such as Lord (Stuart) Rose and Marc Bolland for their support. Paloma Faith performed a song to finish off.

Ciara: one of the celebrities used by Topshop to promote its brand to fashionistas

TOPSHOP

It was classic Green: glitz, glamour and an adoring audience. The stardust masked a growing sense of malaise, however.

BHS has not been his only problem. Topshop continues to perform well but many of Arcadia’s other brands — Evans, Miss Selfridge and Wallis — have become tired and dated. As retailing changes from a high street industry based on gut feeling to an online game run by entrepreneurs with smart algorithms, some believe the fashion game has passed Green by.

An industry insider suggested he had “allowed himself to be caught by the sirens of celebrity”. “That’s what made him sell BHS too late and it’s repeating itself with most of his Arcadia brands,” he said.

Green famously paid his family a £1.2bn dividend in 2005. He enjoys the good life: he spent Christmas at the Sandy Lane hotel in Barbados, hobnobbing with X-Factor supremo Simon Cowell and his wife.

For BHS’s 20,000 pension savers, retirement could be very different.

Celebrity hire
Sir Philip Green looked grey and jaded when he gave a video interview at London Fashion Week last month.

“It’s OK,” the billionaire retailer said, referring to trading. “I mean, obviously, some bits are better than others. Europe, we’re doing well . . . Nordstrom [the American department store chain], very good. And generally, I mean, no disasters, no fireworks.”

Even Topshop, the jewel in his crown, has not been immune to a tough consumer environment. Like-for-like sales at Arcadia fell by 0.9% in the year to last August.

Topshop, part-owned by private equity firm Leonard Green, has recruited celebrities such as Ciara and Beyoncé to improve its appeal to fashionistas.