Joint evidence session between the work and pensions and business innovation and skills select committees day five: the BHS management and owners Image

Joint evidence session between the work and pensions and business innovation and skills select committees - day five: the BHS management and owners

Posted: 21/06/2016

Due to the explosive nature of the evidence given on 8 June, we have moved onto day five. Who would have ever thought that a select committee session would have hit the front pages and become the lead story for prime time new programmes? Well, that’s exactly what happened with everyone waiting with bated breath to hear from Dominic Chappell. Readers who are following the story so far will no doubt have either read the papers or seen the television news and formed a view about the extraordinary revelations and the personal attacks made about certain individuals involved in the saga. We will cover some of these in this summary.

Those before the committees at the first session today were Michael Hitchcock, the former finance consultant for BHS employed by Darren Topp; Richard Price, the former managing director of BHS; and Darren Topp, the chief executive of BHS. At the second session were Mark Tasker, non-executive director of Retail Acquisitions from 5 December 2014 until 11 March 2015 and also a partner at Bates Wells Braithwaite solicitors; Eddie Parladorio, general counsel and director of Retail Acquisitions from 5 December 2014 until 24 May 2016; Aidan Treacy, chief financial officer of Retail Acquisitions from November 2014 until 24 May 2016 (director from 5 December 2014); and Stephen Bourne, accountant and director of Retail Acquisitions from 5 December until 11 March 2015. The third session was dedicated to Dominic Chappell.

Session one

Darren Topp was asked to explain the state of BHS throughout his tenure. He concentrated mainly on what is already in the public domain. Interestingly, he considered that the loss of C&A, Allders and Littlewoods from the high street had a big impact, as it suddenly became a more competitive market. Is it too obvious to ask why BHS did not see this as an opportunity to take their customers? He was asked if there would be any difference under the new ownership and, like sessions before, it all came back to the rents on property. He felt at the time that stepping away from Arcadia would allow this to be addressed.

He was asked about Dominic Chappell. He was told he was a turnaround expert. Chappell’s team included a finance and a property expert, both of which BHS needed. He said that, towards the end, Chappell was not putting money in but had his fingers in the till. In June last year, Topp uncovered things that made him feel uncomfortable and hence the recruitment of Michael Hitchcock.

These feelings arose as a by-product of the section 72 notice that The Pensions Regulator (TPR) issued which required BHS to give details of various things that happened at the point of transaction. These included a document which showed a transaction benefiting either Dominic Chappell or Retail Acquisitions to the tune of £1.8 million; £7 million going to Retail Acquisitions from the sale of North West House to ACE for £32 million; and that the original £5 million investment into BHS came from a loan and not from Chappell personally. This document did not tally with the story Topp had been given by Chappell. He was, however, aware of Chappell’s prior bankruptcy and knowing about his colourful past led the BHS management team to consider that he was not trying to hide anything.

Michael Hitchcock felt he was duped by his first interaction with Chappell last July, calling him a “mythomaniac”. The turnaround plan was credible if the cash was there to do it. Although initially believing Chappell, he now maintains that Chappell is a liar. He told the committees that it took only two weeks in the business for him to conclude that it did not add up.

There also appeared to be stalling tactics in getting the new BHS board to look right despite this being picked up by Grant Thornton. Although this needed to be done, the firm thought that Chappell, although lacking in retail experience, compensated this by property and finance raising expertise and it was essential that this was pulled off.

Hitchcock told the committees that Retail Acquisitions had delayed the property CVA and came up with an unworkable plan called Project Herald which cost around £350,000 in adviser fees. The people Chappell surrounded himself with were not fit for purpose. He reached his conclusion quickly about Chappell saying that he adopts a big smell test in a lot of these situations and this did not smell right.

Post-acquisition, Arcadia still provided many services to BHS, including payroll, its financial accounts payable and receivable, and its digital platform. This was being untangled to allow BHS to stand alone. The cost of these services amounted to some £12 million a year.

It appears that Darren Topp went behind Chappell’s back in December 2015 to seek guidance and help from Sir Philip Green. Sir Philip said he could not help but they did talk about what it might look like, including a possible vote of no confidence. He did impress that, although he spoke regularly to Sir Philip, it was generally about trade. He would also speak to Ian Grabiner (Arcadia’s chief executive).

The committees wanted to know about Sir Philip’s involvement in BHS prior to the sale. They were surprised to learn that Richard Price would meet him twice a week and was thus  very hands on. But even with this level of involvement the business was still making losses that could not be arrested. Price was actively involved in the turnaround plan, mostly predicated on the closure of 30 shops which they believed the new ownership would allow them to do together with trading out of the problems.

The management of BHS was only given a week to present a turnaround plan based upon new ownership. This was only a trading plan. Indeed, despite this hands on and almost daily contact, Price did not know about Sir Philip’s plans to sell until 26 January 2015 when the BHS board was told by Sir Philip that the new owners could do what Arcadia could not around the properties. They were not told about the specifics of the due diligence but it was sold to them as a real opportunity and a form of management buyout.

When asked about the pensions deficit and what being done to deal with it, it seems that there were too many cooks. In Michael Hitchcock’s words “It was like a Mexican standoff. Everyone was dancing around the handbags. It was crazy to see.” Eventually they got it down to a team of three, Darren Topp, Michael Hitchcock and their legal adviser. They engaged Grant Thornton to work up a proposal that would be better than PPF benefits for the members, resulting in what is known as Project Vera. The key change for members would be agreement to switch from RPI to CPI pension increases.

Arcadia knew from start to finish that it was part of the solution but what that contribution would be was never known because the proposal received a straight no from TPR and PPF. TPR had been concerned about historic dividends and money taken out of BHS prior to Chappell’s ownership. In other words, TPR was concentrating on BHS under Traveta’s control.

Michael said that, on two occasions, credible plans to keep the scheme out of the PPF were turned down and, in his view, the process adopted by TPR and PFF “is not fit for the commercial world and does not act in the best interests of the pensioners”. It was the process that contributed to the scheme falling into the PPF. In other words, the process contributed to the demise of BHS.

They were asked about £1.5 million coming out of the business to BHS Sweden. Michael Hitchcock had left by this time and Darren Topp was alerted by someone in the finance team. His first instinct was to call the police but he called Chappell instead and effectively accused him of theft. In response, Chappell allegedly made death threats against him for bringing it up. Chappell then called a board meeting tabling the removal of Darren Topp and Dominic Chappell (who is also said to have called him a thief). At that meeting, Chappell agreed to return the money less an amount for expenses, although eventually that money came back too.

Darren Topp told the committees that telling the staff that the business would probably not exist anymore was the saddest day of his working career. At the time the administration was announced, all BHS and Retail Acquisitions management were present other than Chappell who was on his boat in the Bahamas despite telling management he was in America having an eye operation.

Session two

The first set of questions related to how BHS management came to be involved with Dominic Chappell. None had a relationship extending back longer than the beginning of 2014. Stephen Bourne met him in October 2014 through an introduction by Mark Tasker. Aidan Treacy met him in March 2014 through an introduction made by an insolvency lawyer when he was at that time looking at another distressed company. Eddie Parladorio met him in early 2014 when Chappell was already looking at the possibility of buying BHS. Over some months the involvement increased and Parladorio was then asked to assist in putting together an acquisition advisory board. In October 2014 he got Mark Tasker involved.

Asked about the Retail Acquisitions culture, it was made clear that it was just a special purpose vehicle to allow the transaction to happen. There were three phases:

  • December 2014 when Goldman Sachs told them everything was off
  • In January 2015 direct deal discussions took place between Chappell and Sir Philip
  • By the end of January 2015 the deal was agreed and they moved on from there.

After that, Stephen Bourne said they had active involvement in the due diligence. But, to be clear, there was no actual business to run until the acquisition took place.

The committees asked why, if the company was just effectively a shell, was £7 million taken out of BHS and paid to it shortly after the acquisition? The response was that it was, in effect, a compensatory amount to make up for the loss of profit (£10 million) that Retail Acquisitions would have made on the Marylebone House property deal that was supposed to run in parallel with the BHS acquisition. This had been pulled by Sir Philip 48 hours before the sale.

Wasn’t it therefore a sale not of £1 but minus £10 million as part of a dowry to get Retail Acquisitions to buy it? Aidan Treacy confirmed that the accounting treatment of this £10 million was £5 million as additional equity from Retail Acquisitions to BHS, £3.5 million to reduce loans and £1.5 million was utilised by Retail Acquisitions. This seemed odd to the committees as it conflicted with a Traveta board minute which stated that cash proceeds of £8.5 million for processing Marylebone House was going to BHS on day one. The discussions about the £8.5 million were apparently just between Chappell and Sir Philip. When asked why they did not ask where the £8.5 million was when it didn’t arrive, Eddie Parladorio told the committees that they relied on the personal guarantee that it would come in and that Chappell was fixing it.

The management team was then quizzed about the alleged funding of £120 million that Retail Acquisitions had through Farallon, despite Farallon telling the committees that there was no committed financing available to anybody. Stephen Bourne saw a facility letter for £120 million with conditions about the due diligence, TPR, fees and the condition for Retail Acquisitions to deliver £35 million of equity capital to be able to draw £120 million.

Chappell’s role was to get the £35 million which the committees noted was an identical amount to the sale proceeds of Marylebone House. Was this a coincidence?  Bourne said that nobody reading the Farallon letter would believe that finance was available from them and, until a very late stage, he could not see the transaction happening. This is despite the fact that he emailed Paul Budge on 6 March 2015 saying that funding of £120 million from Farallon is being provided secured against property. Later he told the committees that, even two days before signing, neither he nor Mark Tasker knew where the required £35 million equity was coming from.

They all jumped ship around the same time. What happened? Stephen Bourne was not happy with the names given for the new board post acquisition as some were family and friends of Chappell which he did not think appropriate. Aidan Treacy was really there to deal with the BHS turnaround. Eddie Parladorio intended to go at the time of acquisition but stayed on through interest in the project and, at the point of acquisition, he then returned to his law firm. Mark Tasker had fulfilled his role and also returned to his law firm.

Pensions were only really discussed at the end of this session. Did they know that they were taking on £571 million of pension liabilities? They said that, when initially introduced to the deal, pensions were meant to be taken care of. They were given a full explanation of Project Thor by Deloitte. On 6 March 2015 a figure of £50 million relating to Project Thor was mooted and they thought that the scheme trustees and TPR were in broad agreement of the deal based on sums of £15 million from Arcadia, £15 million from BHS and £20 million as a charge over BHS assets. That was the last they heard.

This session ended with a high possibility that they would be called back. Next for the main event…

Session three

Dominic Chappell had a session all to himself which must have been a rather intimidating experience but perhaps not quite as bad as Sir Philip Green’s session which took place on 15 June.

The committees started to question him about his relationship with Sir Philip Green and how he came to know him. It appears that he was introduced to him in early 2014 by Paul Sutton. The relationship with Paul Sutton had started in 2007 when Dominic Chappell was undertaking a large property development on the Isle of Wight. Although Paul Sutton initially wanted to buy one property, he then decided that he wanted to buy the entire marina.

Nothing came of it and he vanished off the scene. In December 2013 by chance they bumped into each other in London and Sutton invited Chappell back to his Mayfair house. Sutton told him that he had just finished the Snooze Box flotation and asked Chappell if he wanted to write a business plan for an international version. He agreed to do this and, even though Sutton failed to pay him, he then got involved with Sutton on Project Albion.

It was initially unknown to Chappell that Project Albion related to BHS but he did know it was a retailer. In January 2014 he met up with Eddie Parladorio and the business concept for the acquisition of BHS started from there. Apparently Sutton had obtained a full property list, the cash flow position and the stock position. Chappell was not certain how he came about to receive this information but, as far as he was concerned at that stage it was Sutton's deal and Chappell only met Sir Philip in late December 2014.

It transpired that Chappell and his team effectively put Project Albion together making a presentation in May 2014 to Arcadia. There was some doubt over Sutton's credibility at this point and Paul Budge said Sutton was not welcome at the meeting and that all data must be returned and not to bother him again. Chappell thought the deal was dead at this stage. Chappell challenged Sutton as he felt that he had been hoodwinked, that Sutton had fooled a lot of people and that he was a big time property player with a close relationship to Sir Philip. In fact it transpired that Sutton had only ever met Sir Philip once or twice.

Although Paul Budge had shown them the door, the Retail Acquisitions team had carried on formulating a proposal and they went back to him. They were given some criteria to fulfil which included producing a team, providing funding for the start of a property transaction and finding a merchant bank adviser, which resulted in River Rock's appointment.

Chappell and his team met with Anthony Gutman of Goldman Sachs two or three times. Farrallon and River Rock also met him several times after which they were told that they (Goldman Sachs) were happy to introduce them to Sir Philip. Chappell told the committees that they were the gatekeepers, doing the corporate due diligence on their bid to make sure that Retail Acquisitions and its advisors was a credible team.

In the initial discussions with Sir Philip, the structure of the deal was that BHS would become debt and pensions free and with normalised running capital within the business. It transpired that this has also been the basis of the original Sutton deal (Project Albion). However, one week later Sir Philip said that there were issues with the pension and that Retail Acquisitions needed to bring in their pensions people so, at this stage, Retail Acquisitions brought in Grant Thornton and Olswang.

They were then asked about the BHS's cashflow position on day one and, in particular, the £35 million deposited with Olswang which Paul Budge had said was critical for establishing Chappell's credibility. Where did this money come from? Chappell confirmed that it came from the Dellal family (or ACE, their trading operation) and it was purely to purchase Marylebone House which was owned by Sir Philip Green's trust and completely unrelated to BHS.

He confirmed that Paul Budge knew where the money was going and the idea was to buy Marylebone House and then sell on for £45 million. However, the day before the transfer was due to complete, Sir Philip sold it to someone else and said that he would pay them £10 million as compensation plus a split of the upside received between £45 million - £50 million. It therefore appears that Sir Philip sold for a figure in excess of £50 million. Despite this happening, they carried on with the purchase of BHS because Sir Philip gave them an undertaking to pay the £10 million plus within one week. However, the money did not come in in accordance with the undertaking although £10 million did arrive some six or seven weeks later. This was made up of £6.5 million into Retail Acquisitions as a hold harmless effectively against Retail Acquisitions and Arcadia and a soft loan of £3.5 million from Tina Green which was paid to Retail Acquisitions and then paid into BHS.

Chappell told the committees that, when he was told that pensions would not be removed from the deal, they were likely to walk away. It was only at this point that they were allowed access to Chris Martin (the chairman of the trustees) and could discuss it further with Deloitte (acting for Arcadia). They said that there was a plan to put £50 million into a process and that this had been tentatively agreed by TPR. This is consistent with what Darren Topp et al had said at the earlier session before the committees today. This plan was Project Thor.

It seems that they were only officially told on 6 March 2015 that pensions would pass to BHS despite having been led to believe that, as long as they worked with TPR on a Thor/Vera type project, everything would have been OK. Within days of doing the deal they had an open meeting with TPR and the Pensions Protection Fund (PPF). Apparently, at this stage, TPR and PPF would not talk further to Deloitte (Arcadia's advisors).

A few days later the section 72 notice was issued by TRR on BHS. Chappell maintains that they did do pensions due diligence. They had met with Chris Martin who said that he would work with them to deliver a Thor/Vera type project and met with TPR and PPK as soon as they possibly could after acquisition. The reasons for BHS's failure were quite simple as far as he was concerned:

  • the continuous battering from TPR and Sir Philip as BHS was unable to negotiate separately with TPR and to extract itself from the issues that TPR had directly with Sir Philip and
  • trade credit insurance had been pulled due to announcements made by Sir Philip that he was going to either sell or liquidate the company – as a result of these announcements they had to find another £30 million to cover this.

Chappell said that he took on a wounded portfolio of stores. He was then asked to explain what happened to the Ealing property. He said that, although they had agreed that Ealing would not come across as part of the deal, they only found out later in the newspapers that Sir Philip had actually sold it to his step-son. It should have resulted in a further £3.5 million profit for BHS. When he confronted Sir Philip about this, he just said: "well that’s show business". Sir Philip had initially forgotten about the sale when asked by TPR if there had been any transactions with connected parties even though it had only taken place one day before BHS was sold.

Asked to explain the level of due diligence carried out by Grant Thornton, he confirmed that they had received an extensive report into every aspect of BHS, cashflow, property, pensions. It was a piece of work that was undertaken by a team of 20 plus people working on it for three to four weeks. Pre-Grant Thornton's involvement, £120 million was the number that Retail Acquisitions felt it needed to get to make the business plan work. This figure is consistent with the Farallon facility. He said he had seen the committees' interview with Farallon and was shocked as to what they had said and felt that a lot of it was inaccurate.

Retail Acquisitions was working on the assumption of about £120 million of working capital and Farallon was working towards that but it did not come to anything because they were only given 21 days by Sir Philip to do the transaction. Chappell then said that Sir Philip had seen the term sheet and said it was "an expensive form of amusement". He knew it would take six to eight weeks to go through the whole due diligence process but he was in a hurry to get this done and he replaced that facility with an Arcadia funding facility via HSBC.

Chappell said that he felt that the 11,000 BHS staff would have continued with BHS had Sir Philip not tipped the company into administration. He felt there was a credible and viable position that they could have worked their way through with assistance from Arcadia. Asked if he felt if Sir Philip had used them in the sense that a lot of money came out of this business, then there was a fallow period, and then he needed someone to sell the business to, with debt and this huge pensions liability, were they set up? He said that he thinks that Sir Philip generally thought that they would fail and sold BHS to them nevertheless.

He told the committees that he firmly believed that Sir Philip was very hostile about them doing the property CVA. He had not believed that they could get it done and he believed that BHS would collapse. He had made it incredibly difficult for them to do the property CVA regarding his floating charge but they did pull it off. They got through the property CVA on a 98% vote by the landlords.

Chappell confirmed that it was Sir Philip who decided that Duff & Phelps would be the BHS administrators. Chappell maintained that the BHS was saveable and it was not proper for Sir Philip to refer BHS - at that time no longer in Arcadia's ownership -  to the administrators. He told the committees that Sir Philip retained a fixed or floating charge over the business and this floating debt was a stick to be beaten with. It was designed purely for Sir Philip to be able to negotiate his way through the pension minefield that BHS ended up in.

He said the relationship broke down after Darren Topp took it upon himself to start to wriggle his way into the ownership structure of the business in early 2016. Chappell said that he was concerned about the involvement of Duff & Phelps and felt that they were heavily conflicted. Sir Philip refers to them as his ponies and they do exactly what he tells them to do. Asked if Sir Philip brought in the liquidators as well, he said that, if the committees were referring here to Hilco, then they are very much part of the Philip team. He had worked with them before and joint funds them.

He said Sir Philip had deliberately waited until such time as his facility hardened. He made it very difficult for them to do the CVA. When Sir Philip indicated he was not going to support them moving forward, Chappell approached Mike Ashley of Sports Direct. That occurred on the Thursday night before Sir Philip was insistent that they called in the receivers. According to Chappell, Mike Ashley was a willing buyer and there was a willing seller.

When Sir Philip found out he lost his temper and then served notice that tipped BHS over. Chappell said that Sports Direct would have given the company the equity injection it needed to avoid a process. Duff & Phelps would not have been called in and Sir Philip's theoretical £35 million loan against the company would remain in the long grass, as it was always intended to be. Sports Direct made it very clear that it would only do this with a pension agreement, or TPR/PPF agreeing that Retail Acquisitions would be held harmless moving forward. They did not want to walk into the same fight that Retail Acquisitions had for a year with TPR.

Chappell told the committees that Malcolm Weir of the PPF was up most of Thursday night prior to the administration working with them to try to find a solution. Then, on the Friday morning, he said he could not do it in time and that he needed to consult lawyers to get the legal process started for PPF to sign this off which would be a number of days. Sir Philip would not give them time to push that through.

He was asked if Retail Acquisitions at purchase considered that, as the new owner of BHS, it would be able to fulfil responsibilities to some 20,000 pensioners. He explained that, on the advice that they had received and looking at the whole picture of working with Chris Martin and TPR and PPF, they believed that a solution could be found. However, immediately afterwards that belief was shattered by the section 72 notice. This entrenched the situation with Sir Philip. They ended up with a nightmare of compliance and diligence that, as new owners, they had to send to TPR which is, even now, an ongoing process.

The other issue they had was a £10 million a year payment into the scheme to keep it afloat. This was quickly changed to a £25 million a year requirement and the insurance premium (ie the PPF levy) went up from around £300,000 to £3.5 million. So, all of a sudden, BHS was looking at another £20 million plus that it had to find to support the scheme.

Asked about Sir Philip’s involvement in these discussions, Sir Philip Green and Arcadia had agreed to pay half of the £10 million a year – so it was committed to paying £5 million each year. This agreement was for a period of three years. If and when BHS could find a pensions solution, whatever money was left over from that £15 million could be used as part of the pensions payment.

The committees wanted to know why Chappell described the pension discussions as a nightmare. He said it was one of those terrible situations where BHS were being treated as a ping pong ball between the two players. They could not get relief from the moral hazard and Sir Philip was not going to do anything or release any situation he had until his moral hazard for the scheme had been resolved and released.

TPR would not give him a number and Sir Philip was not prepared to give them an offer – so they just ended up in a twilight zone. He said those discussions had taken place behind closed doors and with Sir Philip's camp. Chris Martin had indicated that BHS would have been able to do a pensions project – ie a Thor/Vera - for around £50 million to £70 million but they were not prepared to do any form of deal until they had dealt with Sir Philip and his moral hazard.

So agreement was never reached, despite the fact that they had spent a vast amount of time, effort and money getting to a point where everyone was comfortable, including TPR and PPF that there was a deal to be had. However, TPR and PPF could not engage fully with BHS until they had dealt with Sir Philip. He said they had endless discussions with Sir Philip and it was like lighting a red touch paper. He went from zero to incredibly angry as soon as it was mentioned because it was something that was not in his control. He said that the inability to get resolution on the pensions was disastrous for BHS.

They were unable to raise equity injection and/or funds within the company because of the continuous concern of the funders. Although they had offers from a number of major institutions, it was always subject to the pension problem being resolved. Further, no big hitter was willing to come in to the company which was intended to meet the bureau plan until pensions had been resolved.

Chappell said that he got to the point where he actually rang the pensions minister. He said he had arranged to go and see her on three occasions but she cancelled every single time. He sent her numerous emails requesting help from the Government but she did not reply on the grounds that she was conflicted.

In the run up before the deal was signed, Chappell said that Sir Philip stopped them seeing TPR, apparently saying that if they saw the regulator he would call the deal off. Chappell saw this as a threat. Although a threat, he said that Grant Thornton did have back-channel conversations with TPR which had informed them that they would be supportive of a Project Thor/Vera – whatever it had turned into.

He said that, within days of buying the company, they invited TPR with PPF to a meeting at Marylebone House. They had a protocol agreed that we would work closely with them and they would disclose as much or as little information as they required and it started from there. But within a few weeks they received the section 72.

Lesley Titcomb of TPR, when questioned in an earlier session, had said that the TPR only became aware of the acquisition of BHS through the newspapers. She said that it is an absolute nonsense TPR received this information through Chris Martin. Chappell also said that post acquisition there was relentless pressure from TPR regarding Sir Philip and that both of those sides were so entrenched that they would not deal with BHS at all leading him to call an urgent meeting with them in January this year. He said that they got TPR in a room and put it absolutely fair and square to them as follows: "unless you come up with a resolution or you stand aside and fight Sir Philip separately and let BHS trade through, we will go bust".

He felt that, if TPR had given Sir Philip a number, he was sure that a solution could be found. He said that he thinks Sir Philip challenged TPR for one final spin of the wheel but this did not come to bear. Sir Philip could not face carrying on the way it was, so he called in the administrators.

Finally, he was asked by Michelle Thompson, knowing what you know now, what would you do differently next time? He said it all boiled down to the pension problem. He said it was a travesty that this had happened and it was avoidable. He said, as a major shareholder and owner of BHS, he must stand forward to say that they were part of the downfall of BHS.

There are some significant revelations following this line of questioning, particularly regarding Sir Philip's moral hazard. On the face of it, it does look as though Sir Philip was potentially aware that a section 72 notice might be issued against BHS. It also appears that perhaps he is not a huge fan of Mike Ashley of Sports Direct. Notwithstanding the potential question marks about Dominic Chappell as an individual, particularly given his past, he did actually come through this session with some degree of credibility, although perhaps naivety.

It seems that Chappell racked up enormous costs, particularly relating to personal guarantees that he provided to his advisors, and the only way that those advisors could ever be paid was by the deal actually going through. There must be some question marks around Olswang and Grant Thornton accepting personal guarantees, particularly from an individual with a history of bankruptcy.

So, while there are serious concerns regarding the actual cashflow position of BHS on day one, and there is obviously a detailed examination going on behind the scenes, it can be seen from the questioning that the most significant issue for BHS was the pension scheme debt, and the inability, because of Sir Philip's moral hazard, to get a Project Thor/Vera approved.

While plainly not liking it, even if TPR was looking at Sir Philip’s moral hazard, it had to review everything relating to that moral hazard as part of that process and therefore this would have captured BHS, Retail Acquisitions and any of the senior management involved in the transaction.

TPR will be in the clear if it acted properly in accordance with its legislative powers and there is nothing we have seen that suggests it did not act properly. However, if the legal constraints on TPR contributed to the downfall of BHS, it is inevitable its powers and the way it uses them will be looked at. We would counter the need for a knee jerk reaction because broadening TPR’s powers could theoretically open up more problems. It is impossible to be prescriptive when all cases have a unique set of facts and circumstances. If, on the other hand, there is less prescription and more flexibility, this also creates problems in terms of how and when flexibility can be used.

It will be noted that Dominic Chappell tried to get the pensions minister to intervene. Since giving his evidence, Professional Pensions has undertaken a survey to see what the industry thinks about this move and a majority of 63% believe it would be inappropriate for the minister to side step TPR to rescue a crisis-hit scheme. We think that, perhaps with the inevitable change to TPR’s powers, there might be some pressure to include a change to allow referral to the minister in certain situations. But we do not think this should be permissible because it would require prescriptive measures which would apply to some and not others and could undermine the work of TPR.

Readers should note that this is a brief and selective summary of the sessions on 8 June. We will comment on the session with Sir Philip Green shortly.

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