Sir Philip Green faces paying tens of millions of pounds into BHS’s pension fund one year after selling the struggling store chain for £1.
The billionaire owner of Arcadia Group is understood to have offered about £80m to help ease the scheme’s deficit after pressure from the Pensions Regulator and the Pension Protection Fund (PPF). They have yet to accept the offer and negotiations are continuing, according to sources.
The development is acutely embarrassing for Green. “This deal is coming back to bite [him],” said John Ralfe, an independent pensions expert. “He was wrong to think that by selling BHS he was, with one bound, free of its huge pension problems.”
Green insisted BHS was “nice and tidy” when he sold it last March to a little-known consortium called Retail Acquisitions.The Sunday Times subsequently revealed that Dominic Chappell, who led the buyout, had been bankrupt twice and had been introduced to the deal by Paul Sutton , a convicted fraudster.
This weekend it emerged that Retail Acquisitions took an £8.4m loan from BHS shortly after completing the purchase. The consortium said it was to cover “professional fees” and added that the loan had been paid down to £6.9m since it was taken out.
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Last Thursday BHS announced a controversial form of insolvency, known as a company voluntary arrangement (CVA). BHS, which has 11,000 staff, is seeking rent cuts on more than half its 164 stores and has threatened to close up to 40 of them. It has until March 23 to convince 75% of creditors to back the CVA.
The Sunday Times understands that BHS is also trying to negotiate a regulated apportionment arrangement (RAA) with the Pensions Regulator and the PPF.
This would pave the way for the retailer’s pension fund to enter the PPF, a “lifeboat” for retirement schemes linked to failed companies. The PPF generally pays full pensions to those who have retired but reduces payouts by 10% for those who retired early or are still in work.
BHS’s pension fund has more than 20,000 members. On a “buyout” basis — which takes into account the cost of transferring it to an insurance company — it had a shortfall of £452m at its last triennial valuation in 2012.
Green’s £80m offer is understood to comprise £40m of cash and a £40m loan from Arcadia to BHS, secured against certain assets. The loan would be handed over to the pension fund.
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A source close to the talks said £80m “might sound a decent slug but actually will not go very far” because of the scale of BHS’s deficit. The three sides hope to agree a deal before the end of June, which is when the CVA should be finalised.
Resolving BHS’s pension fund problems could be critical to its survival. Although the CVA does not hinge on the pension deal, BHS is understood to be in the final stages of negotiating a £60m loan facility from the restructuring firm Gordon Brothers, secured against its assets.
It would be “very hard to find somebody who would refinance a business knowing that a crystallised pension debt is sitting there”, said a source close to the talks.
If BHS succeeds with its CVA and the pension fund enters the PPF, the lifeboat is likely to take a stake of at least 33% in the store chain.
News that Green is on the hook for a big payment is surprising because BHS’s pension trustees previously said they had “no recourse to the assets of the Arcadia Group or Sir Philip Green and his family”.
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However, the Pensions Regulator has the power to pursue former owners of businesses if it thinks they have a responsibility. Green, who paid more than £400m of dividends from BHS to his wife in the tax haven of Monaco during his 15-year ownership, is understood to be keen to avoid formal action.
An RAA would spare him that because it would be approved by the Pensions Regulator.
A source close to the tycoon said he was “keen to help find a solution” and keep BHS alive. The regulator declined to comment. The PPF said that discussions with BHS and other parties were “ongoing and no decision has been made”.
