Green sails into BHS cash crisis
Regulator targets billionaire to help plug £570m pension hole in ailing firm he sold – as he buys £100m yacht
THE Pensions Regulator is understood to be considering enforcement action to compel billionaire Sir Philip Green’s family or its retail business, Arcadia Group, to stump up at least £300million to plug a pensions black hole at his former company, BHS.
The threat of action comes ahead of crucial talks between BHS, its suppliers and landlords aimed at saving the foundering business. But the rescue, due to be completed on Wednesday, will not include a plan for the pension fund, which has a £571million shortfall.
Though Green sold BHS a year ago, the regulator can demand payouts from a former owner if there has been a deliberate attempt to avoid a statutory debt.
Under the Pensions Act the regulator has the power to ensure ‘that pension liabilities are not avoided or unsupported’.
Experts said an order from the regulator against Green could lead to years of courtroom battles.
Neil Walton, principal of Royal London Consulting Actuaries – part of Royal London Group, the largest mutual insurer in the UK with £84.5billion under management – said: ‘If Green reduced the asset base of BHS prior to selling the company, sold it for a nominal sum and knew that the scheme had a serious funding shortfall when he sold, then it is difficult to see an argument that he should not contribute towards the shortfall.’
The £300million figure is the basic sum required for the pension fund to continue, but pensions consultant John Ralfe said a claim against Green could be even higher. ‘The regulator has legal powers to make a claim up to £571million against some of the companies in the Taveta Group, controlled by Lady Green and her immediate family,’ he said.
Taveta Group is the ultimate parent company that owns the Green family businesses, and is owned by Green’s wife.
Ralfe said: ‘Looking at what the Regulator has done in other cases, now that the BHS pension scheme is entering the Pension Protection Fund, it will start the process. Although this would take years to work through the courts, the amounts at stake are so huge the regulator will be prepared to spend as much time and money as it takes.’
The BHS fund is in the process of being handed over to the PPF – a statutory fund designed to protect pensioners if their employer becomes insolvent – though members have already been told they will get at least 10 per cent less than originally expected.
The PPF is funded by a levy on companies with defined benefit pension schemes. These levies – totalling £500million a year – are used to fill any gap left by a failed company or scheme.
Walton said that if Green does not fill the funding gap, ‘the alternative is that the shortfall will fall on other employers via increased PPF levies’. Experts said the BHS liabil-- ity could fall within the top ten worst cases received by the PPF, which now has about £30 billion under management.
The new owners of BHS plan to restructure the business on Wednesday using a form of insolvency known as a Company Voluntary Arrangement. A group of littleknown investors, who include former bankrupt ex-racing driver Dominic Chappell, bought the lossmaking business from Green for £1 in March 2015.
The company needs the support of 75 per cent of its creditors, including suppliers and landlords, to go ahead with the CVA plan. Clothing and homewares suppliers contacted by The Mail on Sunday in recent days said they were supportive of the plan to keep the business alive.
But because the restructuring is likely to go through on Wednesday without comprehensive pension fund arrangements, the regulator will be free to use all its powers if it believes that there is a case to do so.
Green is understood to be prepared to offer £40 million in cash and £40 million in debt that BHS owes to Arcadia. But this is unlikely to satisfy the regulator or the PPF.
Hopes of a quick deal appeared to have reached an impasse this weekend. The situation has exposed serious flaws in the powers of pension trustees to act pre-emptively. In particular, there are deep concerns about a loophole introduced by Chancellor George Osborne in 2013 that allows firms to brush aside the demands of trustees, who must ‘take account of the sustainable growth plans of the sponsoring employer’.
In a letter sent to scheme members last year, the chairman of the trustees said BHS had agreed to pay £9.5million a year into the scheme over 23 years and had ‘acknowledged that BHS could not afford to pay any extra’.
‘Every time the regulator tries to stamp its foot an employer can plead poverty,’ said one source.
The situation for Green’s reputation was not helped when it emerged last week that he will soon take delivery of a £100million Benetti yacht, replacing his old yacht Lionheart.
About 20,000 BHS pension fund members already face a 10 per cent cut in their pensions, with a small number receiving much greater cuts.
Green, who is understood to have already engaged legal advice on the matter, is likely to argue that his family last received a dividend from BHS in 2004. In total the firm paid dividends of £400million over three years but at the time the business was making £100 million a year. Green declined to comment.
The billionaire’s family still owns Arcadia Group – the main subsidiary of Taveta – which includes brands such as Top Shop, Top Man, Dorothy Perkins, Burton and Miss Selfridge.
Separately from BHS, Arcadia paid the Greens a £1.2 billion dividend in 2005 – the biggest in UK history.