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Joint evidence session between the work and pensions and business innovation and skills select committees on the collapse of BHS – day nine

Posted: 20/07/2016

The witnesses providing evidence to the committees today were Michael Sherwood (vice chair), Anthony Gutman (co-head of EMEA Investment Banking Services) and Michael Casey, managing director, all of Goldman Sachs. In the second session, there was Mark Sherwood, ex BHS Property Director and, in the final session, Paul Budge and Chris Harris of Arcadia and Brett Alexander Palos of Traveta. Readers will note that this is the second appearance of Anthony Gutman, Paul Budge and Chris Harris.

Session one

In the first session, Goldman Sachs was on the back foot right from the start. Having provided what the committees thought was a complete list of activity relating to Goldman Sachs' involvement only days before this session, it notified the committees of an additional item. This was a phone call taken by Michael Sherwood from Sir Philip requesting the company to consider extending a £40 million loan to support the transaction to be guaranteed by Arcadia. Apologising to the committees, Michael Sherwood said that the call only occurred in a brief moment in time because it was then told to stand down almost immediately after being asked to look at it.

Asked how clients can trust them if Goldman Sachs fails to remember a potential £40 million transaction, Michael Sherwood said that it went away almost as soon as it arrived. He confirmed it was logged into its system and he had missed it. He did not consider it a large point because the extension lasted less than 24 hours. Goldman Sachs did not quote fees or terms for this loan. Michael Sherwood did not consider any of this to be material but Richard Fuller told him that it was material to the committees’ understanding about the roles played by the informal and formal advisors and how informal advice is given credibility. Michael Sherwood was then asked to explain Goldman Sachs' business relationship with Sir Philip.

The relationship started in 2004 when Goldman Sachs was appointed as one of several advisors advising on Sir Philip’s bid for Marks & Spencer. Michael Sherwood was personally involved in the transaction and had known Sir Philip for a couple of years before that. Since that time, Goldman Sachs has given views on various markets, foreign exchanges, interest rates, etc for Arcadia and has provided some of the advice relating to pensions. 

From 2008 the Green family has had a private wealth management relationship with Goldman Sachs but does not receive tax advice. Michael Sherwood explained that Goldman Sachs' focus is on high net worth individuals who have several million dollars of liquid assets. Richard Fuller asked how much money Goldman Sachs had made from Sir Philip in the last twelve years. Michael Sherwood said this was de minimis. If this is the case, he was asked why they do it, particularly as their involvement with Sir Phillip has resulted in them coming before the committees with tremendous reputational risk for them. 

Michael Sherwood said that clients may not do things for a very long period of time but when they do, Goldman Sachs wanted to be in the goal mouth when these things happen. Richard Fuller asked if Goldman Sachs' business model was based on hope. Michael Sherwood said that Goldman Sachs continues to assess the nature of those relationships and it puts the appropriate amount of resources into them and would like it clients to do things that it thinks are in their best interest. 

Highlighting the global brand of Goldman Sachs, he was asked why Goldman Sachs is prepared to lend its brand name to these circumstances. Michael Sherwood referred back to what Anthony Gutman had told the committees in his earlier evidence. Goldman Sachs thought its role was to provide preliminary observations and, when it turned down the assignment, it had no idea who the buyer might be.  

Jeremy Quinn pointed out that Goldman Sachs was half in/half out of the deal which presents a huge risk to all concerned. Michael Sherwood did not think so because of its minimal involvement. When asked about the fact that Goldman Sachs was considered to be the gatekeeper, Michael Sherwood said it was not a term it used and the firm was simply providing preliminary observations. 

When asked about Goldman Sachs’ rationale behind hanging around the goal mouth for so many years and then moving away when a ball is crossed, Michael Sherwood said that they thought the transaction was too small for them. They thought that the potential buyer space was probably a smaller turnaround, the kind of person who ends up buying but one which really did not suit their clients. They were in a busy merger market at the time and had to allocate their resources appropriately, so it was not for them for commercial reasons. 

Asked when Anthony Gutman had carried out his research on Dominic Chappell, Michael Sherwood that this was after Goldman Sachs had turned it down.[1] Michael Sherwood said that, although Sir Philip first called about selling BHS in October 2014, it was of no surprise that if an appropriate buyer showed up that he would sell. In the call, Sir Philip said: "This is probably not for you but would you like to advise on the sale of British Home Stores". 

The questioning then turned to Anthony Gutman. The committees wanted to know why he told Dominic Chappell on 19 January 2015 that there was no deal and BHS would be marketed. How is this reconciled with being hands off as he indicated in his earlier oral evidence? Anthony Gutman said that he did not have a conversation. The email traffic shows that it was Paul Budge who did this. But Sir Philip changed his mind, did he tell Goldman Sachs why? Mr Gutman said no and there was no reason to ask.

On that basis, he was then asked why he spoke to Sir Philip on 26 and 27 January. Mr Gutman said that the first conversation was when Sir Philip told them that he was going to progress the transaction without an advisor. The second conversation was to say that it (Arcadia) was likely to progress with Mr Chappell and there was to be a meeting on 28 January. Goldman Sachs attended that meeting. Following that, Goldman Sachs then prepared its observations on Mr Chappell. Goldman Sachs identified the risks and left it to Arcadia to make its judgment. 

On 3 February, Goldman Sachs had a conversation with Farallon, which was Swiss Rock’s or Chappell's proposed lender, after a summary of the draft terms had been sent to them by Paul Budge. Farallon had basically shown an expression of interest subject to due diligence. Mr Gutman went back to Paul Budge to say that Farallon was credible but it was still a very preliminary financing proposal. He was asked how Goldman Sachs could not ask for the actual term sheet but then go on to provide informal observations from which Mr Budge would then take a lot of credibility because it came from Goldman Sachs? 

On 9 February, the log that Goldman Sachs provided to the Committees shows that Paul Budge asked if it was happy with Farallon's funding proposals as Arcadia was progressing to a draft heads of terms. On 10 February, Anthony Gutman indicated that he was happy with Farallon's initial funding proposal. Anthony Gutman said they were happy at the initial stage that it looked like something that could be progressed subject to a number of conditions. It was OK in the context of a preliminary proposal that would need significant further work. 

Richard Fuller said "You must have known that the advice you were giving would have reinforced the momentum towards the draft heads of terms for a sale. You had not seen the term sheet, you didn’t know that it was not providing sufficient working capital, and as a consequence British Home Stores ended up in the hands of a three time bankrupt. That seems to me to be a dereliction of duty whether you were paid for it or not". Mr Gutman said it was not fair to describe this as a dereliction of duty. It was consistent with market practice and would have been up to Arcadia and its advisors to assess whether the financing proposal was fit for purpose. 

Michelle Thomas then wanted to question Michael Sherwood about Goldman Sachs' reputational risk. He said that it was careful about what clients it takes on and has very publicly turned down certain business where it thought it was inappropriate. Although stating that the procedures were strong and its reputation is good, he did not think its reputation had been enhanced by its involvement in the sale and acquisition of BHS. He also confirmed that Goldman Sachs’ relationship with Sir Philip is being reviewed but it will do more work for him depending on the circumstances of the transaction. 

Turning to pensions, Sir Philip appears to have involved Goldman Sachs' pensions group at the time of the 2012 actuarial valuation and Goldman Sachs' representatives attended trustee meetings. De-risking proposals were being shown to the trustees at these meetings. Michael Sherwood was not aware if any of these proposals were carried out but  it seems that Goldman Sachs' pensions group did give some advice around Project Thor that it was going in the right direction. 

At the trustee meeting on 15 July 2015, Stuart Cash, (then of Goldman Sachs) said that he had been speaking with Sir Philip about managing some of the BHS scheme's exposure and, whenever the trustees propose a change, Sir Philip would always ask "What do Goldman Sachs think of this?". Although Stuart Cash is no longer with Goldman Sachs, it is understood that all the pension recommendations were centred on managing long term interest rates and, to a lesser extent, on inflation. Goldman Sachs was asked to provide a log relating to its involvement in pensions and asked if this could be very specific about what it was recommending as a solution to the scheme and to whom and whether those proposals were ever put directly or indirectly to the trustees of the scheme or purely to Sir Philip Green and Paul Budge. 

Finally, the committees returned to the sniff test. It was pointed out that, when Sir Philip Green was in front of the committees, he indicated he would not have done the deal if Mr Chappell and Retail Acquisitions had not passed the Goldman Sachs' sniff test. Does Goldman Sachs accept blame? Michael Sherwood said that he absolutely does not accept blame. Chappell never passed their sniff test and neither he nor Anthony Gutman had told Sir Philip that Chappell had passed it. All they did was to highlight  their observations about the risks around Chappell and the transaction. Asked if they would accept a degree of blame, Michael Sherwood said that he thought that their role was extremely limited. However, his regret is that he wished they had documented their role more clearly  in writing to avoid  any subsequent confusion but it was crystal clear in their minds what their role was.

Session two

The next session involved Mark Sherwood (not to be confused with Michael Sherwood). Mark Sherwood is the former property director of BHS. 

Mark Sherwood told the committees that he had known Dominic Chappell for around six years on a social basis. Chappell seemed to him to be a successful entrepreneur and he felt that he had the potential to go out and find deals and transact them. Chappell told him that he was seeking to agree terms to buy BHS and asked him to get involved. So he moved to work for Chappell at BHS. 

Darren Topp (who had previously seen the committees) was his line manager and they took advice from specialist advisors where necessary. He told the committees that he was attracted to the role because of the extent and the type of the property portfolio to transform. He said that he expected all of the occupied portfolio to come across. He had been given a schedule of all the properties, their tenure, length of lease, rents and square footage. He received extra information by tracking down the right people. It was all in their heads. His main point of contact was with Chris Harris of Arcadia. 

Mark Sherwood briefed the committees about his involvement. One particular occasion of note was when he went with Sutton and Chappell to Arcadia's office where they did not get past the reception. He said that Sutton disappeared for around 15 minutes and came back saying "Couldn't do the meeting as the regulator is here". At this point he said that he told Chappell that "There are a few warning bells here. I am not sure that I really want to work with them." 

He then explained to the committees about the turnaround plan and his involvement. He also explained the role of Michael Hitchcock who was convinced about being able to negotiate down the rent. Together they went out to meet the landlords. They had a standard routine where they talked through the business plan and the company’s issues. Michael would talk about the pension scheme and then he would say something along the lines of "You do understand, I have got this button I can push at any time and, if you don't work with us, then at some point we may have to push that button." 

They needed to reduce rent by £7.2 million per annum somehow but he said this was the wrong strategy. He said that the right strategy was the CVA. They did not actually have to reduce the rents by £7.2 million at all but needed to take £7.2 million out of the real estate cost. 

He was then asked at what point did he think that he had been sold a dud? He said that, by the end of January 2016, they were having ongoing discussions with the landlords on 25 or 26 properties about the downsizing/sub-letting or coming out. They were moving in the right direction he felt and he did think that they would get there but his concern was that time was running out. Asked if he thought Dominic Chappell was using BHS as a kind of property portfolio to take value out of it, he said that he thought the whole board was using it to support losses in the wider business. 

In terms of interaction with Sir Philip Green, he did have some shortly after the acquisition and then towards the end. In the middle, he was pretty much left alone. He did not return Sir Philip's calls because he did not want to be quizzed by an outsider and he felt that Sir Philip was going to ask questions about what he was doing within the business. He had said that Sir Philip used to ‘dob in’ and, in his subjective view, Sir Philip could not let go and still wanted to know what was going on. 

He was asked whether he was given the impression that the new buyers were maybe in some way almost Sir Philip's people, almost his creation, what was his take on it having seen the evidence? Mark Sherwood said some of what he had heard was contradictory. His take was that Sir Philip was peering over their shoulders and making sure that they did not make a mistake, and that to let someone else go away and get on with it is not in his nature. 

When asked if, knowing what he does now, what would he have done? He said he would have put more pressure on the BHS board to agree to be more open about the disposals they were planning. The concern about adverse publicity delayed BHS and eventually they ran out of time. 

He was asked if valuations produced for Marylebone House and North West House. He said no, but was not surprised that Marylebone House was sold for £53 million. He did not think it was abnormal for such sizable property transactions to be carried out without a formal valuation. 

His involvement with regard to pensions was limited. He said that the landlords asked them a lot about it. He simply told them that there were ongoing negotiations. In summer 2015, he said that the BHS board thought that a pension solution could actually be found but it then became apparent that, although the BHS board wanted it to be dealt with quickly, nobody else did. 

Finally, Mark Sherwood told the committees that the CVA was successful and had actually significantly exceeded the actual requirements in the initial business plan in delivering savings from the property side of the portfolio. If this was the case, he was asked why BHS failed? His answer was ‘money’. 

Session three

The final session was with the Arcadia executives, two of whom, Paul Budge and Chris Harris, had been seen before. Going straight for the jugular, the committees asked about the statements relating to Paul Sutton’s credibility and when this was lost. Robin Saunders had told the committees that it was early in June 2013 but Paul Budge, in his earlier evidence, said it was late May 2014 and Sir Philip Green said it was when the dossier was delivered to him. How can these statements be reconciled?

Paul Budge said he is clear that both he and Sir Philip thought the time was 13 May 2014. They started dealing with Paul Sutton on and off from April 2013 and had the last meeting with him on 27 March 2014. But this time line contradicts what Sir Philip had told the committees when he said Sutton’s credibility had been discredited when the dossier was delivered in August 2014. Paul Budge maintained that Sutton was discredited on 13 May 2014. He said the crucial point was when they received a phone call telling them that Sutton was using Sir Philip’s name and there was a diary entry suggesting a meeting with Sir Philip in May 2014. Sutton was using this story in Monaco making out that he was about to buy BHS which was not true as he was merely looking at BHS under a non-disclosure agreement. 

Paul Budge had previously told the committees that Dominic Chappell has started with a clean sheet. Was he not then suspicious that Chappell was being the front man to what was essentially Sutton’s vehicle? Paul Budge said that, at the time of dealing with Sutton, Chappell was simply a minor player. In that case, what transformed him into the person who could succeed in buying and turning around BHS? 

Budge said that, on his timeline, Sutton was discredited on 13 May and Chappell came forward on 16 July. Asked if Chappell convinced him that he was a credible player at that time, Budge revealed that even then they knew about his bankruptcy (or at least one of the bankruptcies), although in his earlier session he had said this had come from Goldman Sachs. He said that, once they had got through certain conversations with Chappell, they then said to him: ”Look, we are very cautious, we know you have been bankrupt. We want you to go through a process. We want Goldmans to have observation as gatekeeper vet.” 

To back his position, Paul Budge brought along his ‘book’ to the session (we assume this to be some form of diary) to explain how Arcadia dealt with this. From this he recited that, on 3 November 2014, he forwarded his note to Dominic Chappell onto Anthony Gutman which said ‘from our viewpoint, we would like you to start the process with Goldman first’. 

On 24 November, he asked Chappell to set this up directly with Anthony Gutman and on 3 December he reiterated that Sir Philip Green was keen that Goldmans vets to ensure that there are solid funding plans in place for them to be able to do the transaction and to run the business on an ongoing basis; that they are real with their intentions; and people that they can do business with. He said there was no doubt in their mind - and from a personal view point - that Sir Philip was very clear saying ”Paul, please do not get involved, send them to Goldmans. They must go through Goldmans”. 

In the earlier session, Goldman Sachs had denied they were gatekeepers and so Paul Budge was asked whether they had lied to the committees. He told the committees that he thought it was a very unfortunate situation and, with the benefit of hindsight and new views, what was going on with Goldmans should have been documented and it should have been a formal arrangement. He said that this is what Arcadia wanted it to be but sadly it did not end up being that. So, all the evidence that the committees will receive is going to be what he says and what Mr Gutman says. He also stated that, with the benefit of hindsight, he did not think that Goldmans had any intention to do anything that was wrong but he is 100% with Sir Philip.

He was then asked what impressed him about Paul Sutton, were they impressed by his advisors too? He said that he thinks that Paul Sutton got through the door because of Robin Saunders and her knowing Sir Philip and having worked with him. With Sutton, it never got to the point where Goldman Sachs would look at it. This is why he said that they had started with a clean sheet of paper with Chappell because Sutton’s proposal (Project Albion) had been very much predicated on a retail approach and that was quite different to what ended up happening which was more a property-based plan. 

Richard Fuller pressed again saying that everything seems to be around ‘go to Goldman, go to Goldman, go to Goldman’ and it appears that there has been a terrible misunderstanding about who is responsible for establishing credibility between Paul Budge, Sir Philip and Goldman Sachs, so who was responsible for establishing the credibility of Chappell? Paul Budge said that ultimately we (Arcadia) have to take some of the blame. He said that, at the end of the day, they did go to Goldmans with the best intentions. It was not documented. Goldmans was doing them a favour as it was not a big enough deal for them to do. They have already said those kind of things to the committees.

The email trail shows that there was an enormous amount of work, a number of phone calls, and a lot of fact finding going on. At the meeting on 28 January, the email submissions will show that Sir Philip  had asked for  quite a comprehensive agenda for that meeting covering proof of finance, ability to be able to do this transaction, a proposal regarding pensions, business plan, and assurances that they will run it on an ongoing basis and not put it into process.

Richard Fuller then asked the question: “Would  none of this have happened if, after ‘go to Goldman…’ they had come back saying ‘do not touch this’?” Paul Budge said yes. “Yet for Goldmans, this issue, this small business of £600 million a year, 11,000 employees, 20,000 pensioners and one of the country’s greatest brand names was too small for them. They do not charge any fees, they do not have a contract with Arcadia. All they do is give informal observations and now there is a disconnect between what you say and what they say. Does this not say that the governance issues within Arcadia group were utterly incapable of providing the important judgment about whether to take someone forward to go through the later processes?" 

Paul Budge felt this was unfair saying that they were trying very much to go through a process and, to be fair to Goldmans, there is a longstanding relationship. Even though there was a relationship and Goldmans appears to be in a trusted position, it was not particularly remunerative for them. Asked what observations Goldman Sachs had made that led Arcadia to believe that £120 million funding was available, he said it was predicated on property and that they knew what was being proposed with BHS at the time.

Paul Budge then received a barrage of questioning from Richard Fuller because there was quite clearly a difference of opinion about the actual assets available. Richard Fuller said that Paul Budge should go to speak to Goldman Sachs and get some math lessons! 

Questions then moved back to Chappell's credibility. How did £35 million paid into escrow show this? Chris Harris said it shows that Chappell could access £35 million in a few days. Richard Fuller then turned to Chris Harris and asked:‘What on earth does that mean, Mr Harris? You are not talking about someone just being able to borrow money from someone for three days to show credibility. Credibility is about whether he can run the business, isn’t it?’ Chris Harris responded saying that it showed credibility commercially because it shows that Chappell has access to funds. Then, during an intense exchange, Chris Harris said: “If I asked you to go and put £35 million in a bank account by Monday, I am not sure whether you could do it”. 

Richard Fuller responded: “Maybe I could”, and Chris Harris said: ‘I do not know’. Richard Fuller then said: ”I do not know, but that was not the point. I am not trying to buy British Home Stores, am I?” Richard Fuller then pointed out that Goldman Sachs did not really bother to look into anything. Then there was Farallon’s phoney term sheet; and now Chris Harris is walking in saying, just because someone has mates, they can sell a property that they do not own for £35 million, that somehow you can put the livelihoods of 11,000 employees on the line. 

Chris Harris said: “Mates is your word it is not mine. I guess what I am saying is that there are a number of factors and £35 million into an account in a few days was one of them. That is what I am saying on that matter. I am not saying that he has mates to go and flip the property to somebody”. 

Paul Budge then intervened saying: ”Let us put this on the table: we sold BHS as a solvent business with plenty of cash and plenty of assets, £94 million worth of cash and facilities, £119 million worth of assets that came unencumbered over the course of the 12 months”. BHS was ripe for turnaround and it was an opportunity to do it but Budge said unfortunately it was not executed quickly enough. What was intended to happen, what everybody thought would happen did not happen quickly enough. Step one, go to the landlords to seek impairment from them to help with business when going forward. Hopefully, the landlords would engage, if they did not engage, step two, a CVA which would be done in quite short order. If that had been done nine months earlier there would have been sufficient reductions to enable the business to go forward. He said the pension at that time would have gone into the PPF assessment period and, as a result, Project Thor would have been the rescue plan for that pension. Essentially, the turnaround plan was not executed fast enough in his opinion. 

With some astonishment, if BHS was a solvent business, why did Traveta have to give a letter of assurance to PWC to allow PWC to sign off the accounts as a going concern? He said that they had to sign off a going concern letter predominantly because it was being financed by Arcadia and it had been losing £35 million to £40 million per annum. 

Paul Budge then said that the Pensions Regulator saw it as being a solvent business. Jeremy Quinn then asked: “Why were you then considering putting it into insolvency, which is the evidence that committees have heard, that there was a choice of either selling it to Retail Acquisitions or pulling the plug?” Paul Budge then explained there were three choices. The first was to sell as a solvent going concern which the board unanimously wanted to do. Secondly, they would put it into insolvency or thirdly, if the sale had not proceeded, Arcadia was in a situation where it was going to have to take security for any future monies it lent to BHS. He said that, over time, insolvency was probably inevitable if it stayed within the Traveta business. 

Jeremy Quinn then highlighted that BHS was seeking emergency cash support within three months of the sale. Paul Budge said that, even in June 2015, he knew that BHS had money in the bank. Its critical cash position, the way the business ran, meant that it needed to have about £80 million peak to trough in terms of working capital requirement and the peak cash position used to occur in October, just after the September rent quarter, at the time that the business is already gearing up merchandise to be sold at Christmas. That was its peak cash position. 

Grant Thornton had analysed the cash as part of its due diligence in an enormous amount of detail. He referred to a report prepared for Retail Acquisitions and Chappell  which would not have said it was going to have cash problem in June, even though he had never seen it. Chris Harris agreed with what Paul Budge had said about transaction delay but quickly found himself under attack from Richard Graham who pointed out that Retail Acquisitions could not exercise the property plan with a pension scheme deficit hanging around, which is precisely what had been the white elephant in the room the whole way through this enquiry.

It is the crux of this whole thing. Paul Budge agreed with Richard Graham. He said that Arcadia had spent the best part of £1 million on Project Thor with Deloitte. They had not spent that much money for any other reason than to find a sustainable pension solution. 

The questioning then turned to Marylebone House and, in particular, the involvement of Arcadia with regard to the sale. The property was not owned by Arcadia but the Green family trust, so why was Chris Harris dealing with the deal? Chris Harris felt that he needed to take them back in time and to explain all about Marylebone House. 

The Green family purchased it on 1 August 2013 from the Prudential. The Green trust paid £31 million for it and put it into an SPV (Wilton). Marylebone House was then going to be sold to Retail Acquisitions for £35 million. That deal aborted because they had another offer from someone else. He said this was for £52 million and not £53 million as had been quoted before. He said he was merely helping in terms of receiving the offers and reporting back to the Green family despite being an Arcadia director. Even though there were quite a few offers, the Greens decided they were not interested and then in July 2015 Arcadia duly purchased the building. He said he was not doing this in isolation and both Paul Budge and Sir Philip knew about it and there was a constant dialogue about the offers that were being made. 

Chris Harris told the committees that there was no need to have valuations on the property at the time because they had enough knowledge of the building to understand that the true value was £53 million which has now been supported by a subsequent valuation. Chris Harris defended their position because he has a team of over 100 people, many of which are RICS qualified and are specialists in this area. He has 25-30 years’ experience and it was not as if they were just buying something off the street and that he did not know what he was doing. But, when there is a transaction between Sir Philip Green’s family and Arcadia, who are his people working for? Chris Harris said Arcadia. 

Paul Budge felt that there was a quorum at the time to sign off the transaction. Jeremy Quinn pointed out that it is very important that there is a clear understanding of what happened between the acquisition of Marylebone House for £31 million, combining the head lease and then selling on for £53 million. 

Questioning turned to corporate governance. Michelle Thomson wanted to understand what the internal view was with regard to the role of non exec directors compared to other companies. Paul Budge said that he could comment with regard to other companies. Chris Harris intervened and said he believed that the role of non execs in Arcadia is that the executives are experts, professionals in their area, and are given the responsibility to perform these functions within the business and for non execs to attend board meetings on a monthly basis and challenge the overall strategy and direction of the business. 

It was quickly pointed out to him that Lord Grabiner QC as chairman was not at the meeting on 10 March when the sale of BHS was agreed, Chris Harris said that, in an ideal world, they would have invited him to the meeting. Giving further background, he said it was towards the end of a very long transaction and it was a long day as well and they had been working pretty much round the clock to get the transaction to the place that they had got to. He said it was an evening meeting around 9 o’clock and they were discussing whether they should proceed and conclude the transaction at that meeting. 

He believed that Brett Palos (a non exec) was present. He said they were keen to conclude the meeting even though it was late in the day and they had delegated the responsibilities as a small sub committee of the Board to identify potential purchasers and agree the sale of the business. The sub committee comprised Paul Budge, Chris Harris, Gillian Hague and Sir Philip. It transpires that, after the 29 January meeting when the sub committee was in effect formed, there were never any subcommittee meeting minutes produced. Paul Budge intervened and said that, although no minutes exist, the people concerned were in constant dialogue and contact. 

Brett Palos then chipped in. It was his first time before the committees. He said he is a non remunerated non exec director of Traveta Investments[2]. He said, as a board, he thinks, going back to the beginning of the year (2015) there was a clear desire for the sub committee to get on and find a solution to the sale of BHS as a going concern and authority had been given to them at that point for that to be the understood case. They went ahead to deliver that. 

Michelle Thomson pressing again said that, with all due respect, she is not hearing any evidence of any corporate governance from a protection point of view that will stop things happening and that there did not seem to be evidence of any example where a decision made by Sir Philip had been subsequently overridden by the board. Pressed again concerning the actual ultimate meeting when they decided to sell the business, Chris Harris said that, in an ideal world, Lord Grabiner would have been at the meeting. 

Richard Graham said that neither Paul Budge nor he had quite confirmed what the Traveta Investment’s last board meeting before the sale of the company was in terms of authority given to the sub committee. Brett Palos said it was very clear that the most relevant people in the executive team on the board were definitely given a task to go and find a solution to sell BHS as a going concern and that Lord Grabiner was very involved in that decision at the time. These were the people who were going to go and do the job and there was not going to be a board member who would not have supported their decision. They had been chosen to find a solution. 

Paul Budge told the committees that, with the benefit of hindsight, Arcadia has let itself down and Goldmans has let them down. Paul Budge said, in his view, there were a number of people to blame. It is a very sad thing that has happened. They can only apologise to the employees and say that they want to sort out the pension. If they could do things differently, of course they would. 

Frank Field interjected saying “Lyndon Johnson said ‘the buck stops on my desk’. Surely the buck stops on Sir Philip and Lady Green’s desk does it not?” Paul Budge said that he honestly believed that, if things had been done more quickly, it could have happened even with Mr Chappell and Retail Acquisitions in charge. 

Frank Field said that: “Probably, at a minimum, £1.6 billion was taken out of the BHS and Arcadia, maybe £2.6 billion, and it went up to Lady Green. Surely she and her husband are where the buck stops.” Richard Graham pointed out that when the business was sold, the pension scheme with its £570 million odd deficit went with the business. 

At that stage it was inevitable, because you never sought clearance from the Pensions Regulator that it would trigger a section 71 enquiry the very next day. Why wasn’t the pension scheme solved earlier and why was BHS sold with the pension scheme despite the many claims by Sir Philip that he wanted to sort the pension scheme problem? Pressing further, Frank Field said: ”The family could sort this pension out now if it wished to, they just have to come up with some money, money they have already taken out five fold. We are fed up of hearing ‘I am about to fix it’ when what is required is a very large cheque from the Green family and Sir Philip could fix it today if he were serious.” Paul Budge said that he is certain that, if Sir Philip has said he is going to fix it, then he will. There is a work in progress with the Regulator. 


Today's session shone a light on the strange relationship between Goldman Sachs and Sir Philip Green.  While both accept a contributing role towards the failure of BHS, it has made a mockery of the influence that very successful individuals can have over some of the most successful worldwide corporate businesses like Goldman Sachs. 

Despite what Goldman Sachs originally told the committees, it does appear that it may not really have been its idea to decline this work and to simply take on the role of unpaid observers. Both Goldman Sachs and the Arcadia Directors fell short of completely blaming the other but, using the favourite term of this evidence gathering “the sniff test”, it does smell like it.  

What is interesting from a pensions perspective is that Goldman Sachs had also been heavily involved in the idea that ultimately culminated in Project Thor, almost suggesting it was their idea.  Surely they got paid for that?  Also at the meeting on 28 January 2014, the meeting where Goldmans was to vet Chappell, the agenda included “a proposal regarding pensions”. Chappell, in his evidence, told the committees that the BHS purchase would be pensions free. We can only assume that, at this stage, pensions was supposed to be outside of the deal.  Readers will note that this was only six  weeks before the eventual sale.  

It is also very clear that Frank Field, Chair of the Work and Pensions Select Committee, has pretty much made up his mind that Sir Phillip knew what would happen as soon as the sale went through and that it is he who should have responsibility for  plugging the pension deficit. The alarm bells really could not have been any louder. After all, the Pensions Regulator still had an open investigation over the 2012 actuarial valuation which ended up with a 23 year recovery plan. It had rejected Project Thor because Arcadia refused to answer questions and provide more information relating to earlier transactions and it had made its views known about a prospective sale.  

Yet despite this, the sale was forced through and Chappell/Retail Acquisitions ended up without any real chance of survival unless their own version of Thor (Project Vera) could have been used. This had no chance once the section 71 notice[3] had been issued against BHS which was only days after the sale. As Richard Graham put it:  pensions is the white elephant in the room running right through the enquiry and the crux of this whole thing. [4]


[1] It seems very odd to have carried out due diligence after Goldman Sachs had said they did not want to be involved.  Anthony Gutman’s further evidence below suggests that they were in fact told by Sir Philip that he was not going to involve advisers, although still expected them to turn up to vet Chappell on 28 January.

[2] Was he really doing it for the love of it?

[3] A section 71 notice is a notice under Section 71 of the Pensions Act 2004.

[4] Readers should note that Lesley Titcomb has written a detailed letter to the Committees stating that she denies that TPR is largely to blame for the failure of Project Thor in response to what Messrs Budge and Harris said in their session today. She says: “We do not accept that the regulatory framework was responsible for Project Thor, or other proposals, not being agreed”. She argues that TPR was not given enough information to properly assess and judge whether the statutory criteria had been met. She also makes it clear that TPR did not express any view on the solvency of BHS on 4 March as indicated by Mr Harris. She says that TPR instead explained why it was difficult to approve a proposed regulated apportionment arrangement (which formed part of Project Thor) either before or post sale, as what was proposed was that the business would be sold on a solvent basis by Arcadia.

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