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Why has BHS recently fallen into administration? Mark Smith and Nick Moser, partners with Taylor Wessing LLP, examine the causes and effects of BHS’s recent decline.
An investigation into the circumstances of the retail chain BHS’ fall into administration has been ordered by the Department for Business, Innovation and Skills (BIS). Particularly, the investigation will focus on the conduct of present and previous directors of the company.
On 25 April 2016, BHS went into administration, 88 years after it was founded. It marks the biggest fall of a UK retailer since Woolworths in 2008 and places 11,000 jobs and 164 stores at risk in the UK. According to recent press reports, its debts stand at more than £1.3bn, with a pension deficit of between £350m and £571m, depending on the basis of calculation.
The fall of BHS has received national attention and will be the subject of various parliamentary and regulator enquiries.
Sir Philip Green acquired BHS from Storehouse Plc for £200m in 2000. By the end of the second year of his ownership, the pre-tax profits of BHS had increased from £18.5m to £94.8m, and its pension schemes had a surplus (on the company accounting basis) of £17.4m.
The profits continued to be high, at around £100m a year, until 2004, although its pension schemes slipped into significant deficit over this time. The company paid out £414m in dividends over these four years, most of which went to Sir Philip and his immediate family as the ultimate owners of BHS. This meant that company reserves were being paid out in dividends at a time when the pension deficit was beginning to become sizeable—leading to criticism of Sir Philip.
Sir Philip has also been criticised for certain
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