UK: The Bid That Fell Through

Last Updated: 22 July 2016
Article by Grace Ho

Since the former high street giant BHS entered into administration in April of this year, efforts have been made to rescue BHS from liquidation and save the many jobs that are at stake.

At the end of May 2016, a surprise bid was made by Greg Tufnell (former managing director of Mothercare and Burton) to acquire BHS. The administrators, Duff & Phelps were expected to name a new BHS, under Tufnell consortium (fronted by Greg Tufnell). However, there was further disappointment at the end of June when Duff & Phelps said that it had not been possible to agree the sale of BHS. Although many offers were originally received, none had the working capital to secure the future of BHS. Furthermore, Tufnell consortium reportedly failed to produce the necessary funds to complete the deal.

Although many predicted the demise of BHS, the fact that all 163 BHS stores will eventually be closed down or sold in the coming weeks and around 11,000 individual's jobs will ultimately be lost – all have been told that their jobs are "likely to go", will inevitably have an enormous impact. A statement by Anna Soubry, Minister of State for Small Business, Industry and Enterprise, explained that the focus now "is to support all those affected and get people back into work as quickly as possible... I can assure the House we will do everything in our power to support workers and their families through this difficult time". She went on to say that action will be taken against those who are accountable where it can be proven that directors' conduct fell below what was expected.

Accountability and on-going parliamentary inquiry

In addition to all the press coverage on BHS, there has also been an ongoing parliamentary inquiry run by the Business, Innovation and Skills Committee and the Work and Pensions Committee (together the Select Committee), which can be viewed via The inquiry has taken the form of parliamentary sessions, where individuals have been put on the stand to answer questions and scrutinised in relation to the sale and acquisition of BHS and the issues leading up to its administration. It has focussed on a number of matters relating to company law and examining the steps taken by Arcadia Group to ensure that Retail Acquisitions Limited (RAL) was a responsible purchaser of the company. The inquiry has also looked at what checks were undertaken by RAL to verify that BHS was a going concern.

Some of the main questions included:

  • What due diligence checks was RAL required to conduct by law prior to purchasing BHS?
  • What steps did Arcadia Group take to confirm that RAL was a responsible buyer?
  • What was the role of external advisers during the sale and acquisition process, particularly bankers, lawyers, accountants and auditors conducting due diligence checks?

These sessions have been running for over a month and are available for public viewing. The Select Committee has thus far interviewed those involved in the transaction (from the lawyers, accountancy firms and advisers who represented the parties involved, to Sir Philip Green (PG) and Dominic Chappell (DC)). The questioning of PG on 15 June 2016 yielded less than what the Select Committee hoped for, with some of the main questions not, in their view, being answered sufficiently (such as how much BHS was paying into its pension fund and whether PG know about the deficit in 2012). Nevertheless, PG apologised for the downfall of BHS and indicated that he wanted to assist with sorting out the mess that has become of the pension scheme.

The panel responded: "We thank Sir Philip for giving us six hours of evidence in Parliament today, and we were pleased to hear that he is still trying to put together a better deal for the BHS pensioners. We hope he will come up with an offer that is satisfactory to The Pension Regulator (the PR). However, he doesn't only have to satisfy PR, today he is before the bar of public opinion. Much of his reputation now depends on how generously he responds." It is clear that Parliament are taking this issue seriously and are continuing to provide public access to information regarding new evidence provided. The Select Committee has by letter dated 20 June 2016 requested PG's wife, Lady Green, to provide information on the corporate structures and any influence PG exercised.

The importance of record-keeping

We always encourage clients, trustees and companies alike to keep a clear and detailed record of: meetings; conference calls; and other forms of correspondence regarding business and scheme matters. The recent BHS parliamentary sessions are a stark reminder of the importance of record-keeping and the potential repercussions of falling short of the mark. It was not only the key individuals (DC and PG) who were questioned heavily on their role in the demise of BHS, but others, including their professional advisers, have also been asked to provide evidence and explain events leading up to April 2016. For example, the lawyers, consultants and accountancy firms assisting with the previous sale and purchase of BHS were quizzed over certain conversations that had occurred, and were asked for specific dates of when certain information came to light. This should act as an important reminder for companies, trustees and professional advisers alike, to keep a precise and detailed record of communications and events.

Should the Pensions Regulator be given more power?

The outgoing head of the Pension Protection Fund, Barbara Judge (Judge), has argued for new legislation to be put in place in order to give PR the power to stop M&A deals that would be detrimental to members of defined benefit pension schemes. Judge explained that pensioners need to be protected and, by providing PR with such a power, situations such as the BHS administration could be avoided or less likely in future.

Although Judge's reasoning seems reasonable and fair, the practicality of allowing PR to approve or disapprove any relevant sale or purchase will inevitably have a negative effect on corporate transactions and those involved in the process. For example, it will:

  • put more pressure on companies to keep costs down in case PR refuses to allow a sale/purchase;
  • increase pressure for advisers acting for the buyer or seller; and
  • slow down the entire process of the transaction.

This would result in an increased cost for managing such transactions and a greater focus on pensions during the due diligence process. The transaction also highlights uncertainty as to which advisers should take the lead over such matters as applying to PR for Clearance of a transaction. Further clarification on this point would be helpful for professional advisers and their clients alike.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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