Strategy & Operations » Governance » Arcadia FD warned about BHS buyer ahead of sale, MPs told

Arcadia FD warned about BHS buyer ahead of sale, MPs told

Paul Budge, Arcadia Group’s finance director, was told that BHS buyers had no retail experience

THE finance director of Sir Phillip Green’s retail business was warned about the proposals to sell BHS to a consortium with no retail experience, MPs were told during a hearing into the retailer’s collapse.

Anthony Gutman, joint head EMEA investment banking services at Goldman Sachs, said the bank flagged concerns to Paul Budge, Arcadia Group’s finance director, and Sir Philip Green, over the proposals, the consortium and Dominic Chappell, the former bankrupt who led the buyout.

These included the facts that Chappell had been declared bankrupt and lacked experience in the retail industry.

During the joint business, innovation and skills and work and pensions committee hearing into the collapse of BHS, Budge confessed that the company was “cautious” about the impending sale but both he and a several Arcadia executives “seriously believed there was a credible business plan and seriously believed he was surrounded by credible people.”

He said the “most heavy due diligence I have seen” took place before the deal was rubber stamped and BHS’s demise was down to the turnaround plan not being delivered “quickly enough”.

BHS auditor PwC was also questioned over why it described the embattled retailer as a ‘going concern’ just days before it was sold for £1.

MPs expressed their concerns as to why PwC had been prepared to sign off the troubled retailer’s accounts as a going concern, when the spectre of possible insolvency was looming and visible to both the pension scheme trustees and the company itself.

Five days after the auditor’s report was formally signed off on 6 March 2015, BHS was sold to Retail Acquisitions on 11 March.

PwC partner Steve Denison said that “at the time no deal had been done, so in the event a deal didn’t happen, then there was written confirmation of financial support from Tavata [BHS shareholder group].

‘In the event the deal did happen, that financial support would fall away and so other factors came into play such as the provision of additional cash resource for trading in the future”.

Denison said there was “no material uncertainty”, given that “the existing management team was trying to turn the business around, and had some success in driving costs down and reducing cash requirements, the cash requirements were lower than the losses shown, and there was a deal which would bring extra cash from the vendor and new cash from the purchaser.

In a written reply to committee member and MP, Richard Fuller, over going concern issues, PwC said the completion of the BHS audit for the year ending 31 August 2014, whereby most of the work was done in late 2014, was brought forward to the beginning of March at the request of the company and because of the potential sale.

KPMG partner, David Clarke, whose firm performed an advisory role to the BHS pension schemes, told the hearing that it had raised concerns over Retail Acquisitions, and sent them to both the retailer and the raft of other advisers before the sale of BHS took place.

Clarke revealed that he and his team “were particularly concerned about its ability to continue to trade and fund both BHS – which was clearly loss-making – and the [pension] schemes.”

He said the firm had submitted its concerns to the group in writing on February 25 2015.

“These included what working capital facility they would have and what security packages would be in place, a deal timetable and whether the buyer had started pensions due diligence, so they understood what they were acquiring.”

The cross-party group of politicians heard how the BHS pension deficit had rocketed to £274m in 2016 from just £61m four years earlier. And when the business collapsed earlier this year, its 22,500 pension scheme members, where most had less than £18,000 in assets – the deficit was estimated to have mushroomed to £574m.

The select committee will be hearing evidence from advisers – including Grant Thornton – to Retail Acquisitions Ltd (RAL) on the sale on 25 May.

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