Out-Law News 2 min. read

Financial Times calls for Sir Philip Green to face consequences of BHS pension deficit


Calls from the Financial Times for Sir Philip Green, the former owner of BHS Ltd, to contribute to the company's considerable pension deficit will make it much harder for the Pensions Regulator to accept an informal offer, an expert has said.

In a recent editorial, the newspaper urged the regulator to use BHS as a test case for "the rules that past owners cannot simply walk away from pension schemes when they get into a mess". Although Green has reportedly offered the Pensions Regulator an £80 million settlement consisting of £40m in cash and the transfer of a £40m secured loan, the regulator should be asking for "somewhat more" against a pension deficit valued at £225m during its last valuation in 2014, the FT said.

"With the intervention of the FT, the pressure has ratcheted up sharply on Philip Green," said pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com. "The Pensions Regulator had already been deep in discussions following the administration of BHS, but the FT's strong stance will make it much more difficult for the regulator to accept the informal offer reportedly made."

"This is not the first time that the regulator has had to decide whether to take the money or open the box. More than once it has done the latter, only to be disappointed - Reader's Digest and Bonas being two prominent examples. The FT thinks that the risks of inaction are, on balance, greater - but will it be so trenchant if the risks of action manifest themselves?" he said.

Last week, BHS announced its intention to use an insolvency procedure known as a company voluntary arrangement (CVA) as part of a "groupwide turnaround plan" to restructure the loss-making business. The plans include changes to its property portfolio depending on whether it can negotiate rent reductions, a head office re-structure and "active discussions to address the pension deficit".

BHS was purchased from Green's Arcadia group of retail businesses by Retail Acquisitions Ltd in March 2015 for a cash price of £1, but Green also "took substantial dividends" out of the business and "charged some of its assets to back what had been intercompany loans" when BHS was sold, according to the FT. The newspaper said that these "benefits" obtained by Green from his ownership of the company would be enough to trigger the Pensions Regulator's powers to pursue a former employer under the 2004 Pensions Act.

The Pensions Regulator's 'moral hazard' powers allow it to take action to protect the benefits of pension scheme members, and to reduce the exposure of the Pension Protection Fund (PPF) to claims for compensation from scheme members should the benefits they have been promised not be paid in full. It can issue a contribution notice where there is a deliberate attempt by a previous owner to avoid its statutory debt, or a restoration order where there has been a transaction at an undervalue involving the scheme's assets.

The regulator issued its first contribution notice in June 2010 against Michel Van De Wiele NV (VDW), the parent company of textile machinery business Bonas. Its determinations panel found that VDW had retained the Bonas business while avoiding the pension liability by placing the company into a pre-pack insolvency, and that it had not been open with the scheme trustees or the Pensions Regulator when it did so. VDW was ordered to pay just over £5m to the PPF, which the panel said was "the amount needed to take the scheme up to a position of solvency on the PPF basis".

In 2010, the Pensions Regulator refused to approve a rescue package put forward by Reader's Digest UK, the sponsor of the Reader's Digest Pension Scheme, which would have resulted in the scheme falling into the PPF. The company had offered to make a cash payment of £10.9m to the PPF and to give the PPF a stake in the restructured UK business. The company was eventually liquidated and the pension scheme transferred to the PPF, which is now paying compensation to the scheme members instead of their promised benefits.

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