Read almost any article about the recent demise of BHS and you
will be drawn into a lurid tale of directors and advisers allegedly
driven by greed, self-interest and showing a stunning lack of
judgment. Indeed, you could be forgiven for thinking it was an
episode of House of Cards starring Wall Street's own Gordon
Gekko. Yet for all the vitriol and indignation expressed by the
public, government and media, no one has yet been held
BHS was founded in 1928 and was bought by Sir Philip Green in
2000. In March last year it was sold to Dominic Chappell's
Retail Acquisitions Limited for £1. Just over one year later,
it went into administration. There was an immediate public outcry
and soon afterwards, the joint report by the work and pensions
committee and business, innovation and skills committee was
Running to 61 pages, it is damning and emotive. In its
conclusions, Sir Philip, Mr Chappell and other directors, advisers
and "hangers on" are all identified as culpable. The
report repeatedly criticises Sir Philip for (among other things)
pushing through a rushed sale to someone he should have known was a
wholly unsuitable purchaser.
The report finds that his failure to resolve the problems of the
BHS pension contributed substantially to the company's demise
and that he has a "moral duty to act" to resolve this
By the last page of the report, one could almost hear the cries
of "outrage!" and "something must be done!"
from the masses picketing outside Westminster. However, to date,
not a lot has happened. The Pensions Regulator has sent warning
notices to Sir Philip, his group and Mr Chappell. The Financial
Reporting Council launched an official investigation in June into
the PwC audit of BHS for the 2013-14 financial year after a
The Serious Fraud Office is looking into the collapse of BHS but
no full investigation has yet been announced. Further, the bar to
merit a full investigation by the SFO is high and although an
investigation into PwC's audit is welcome, it will not address
the actions of those parties that the report claims are the cause
of this collapse. Indeed, while the report has a very loud bark, it
seemingly has no bite.
Other legal mechanisms do exist that could seek to hold the
culpable to account. The Companies Act 2006 has tried to codify the
duties of directors and the Insolvency Act 1986 contains provisions
aimed at constraining and penalising wrongful or fraudulent trading
and misfeasance by directors.
Various other employment and pension laws also govern
directorial behaviour. But are our laws adequate as a tool for
driving corporate responsibility?
Arguably, the law's role is not to impose morality on
directors. Morality and law are related, but the law is not a moral
code, and for good reason. Whose moral code would the law apply?
As for our insolvency law, in its purist form, it exists merely
to create an orderly winding up out of the unfairness and chaos of
insolvencies, such as that of BHS.
So it may be that our law is not unfit for purpose but rather
that its purpose is not what one might wish it were. As a solution,
our insolvency law may benefit from adopting an outcome-based
approach to the issue of directorial culpability in an insolvency.
In other words, companies fail for many different reasons. The
difficulty for the law is in identifying those corporate failures
attributable to culpability of the directors, rather than outside
A mechanism similar to that used in tax law, where a distinction
is drawn between "evasion" and "avoidance", may
be useful in interrogating the motives of directors and thereafter
attributing appropriate responsibility and sanctions on the
That said, if we employ the law to reduce the risk of failure by
punishing harshly the authors of those failures, we do so at the
risk of discouraging entrepreneurial risk-taking and inadvertently
harming the economy in a way that is probably more difficult to
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