Business Comment Business

Less Green on the other side: the BHS story continues

As the House of Commons strip down Phillip Green, James Humpish and Peter Sequeira turn their attention to Green's successor, Dominic Chappell.

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Image Credit: N Chadwick
Image Credit: N Chadwick

Capitalism has more than one unacceptable face and Dominic Chappell can't be the only BHS owner to be let off the hook.

After 88 years as a staple of the British high street, BHS went into administration in July. The publication of a parliamentary report into the circumstances surrounding its tumultuous downfall focused its blame almost solely on Sir Philip Green (the owner of BHS until March 2015). However, BHS went into administration some sixteen months later, under the ownership of Green's successor, Dominic Chappell. Now, the House of Commons have voted to strip Green of his knighthood, following a debate in which Green was dubbed "a billionaire spiv who has shamed British capitalism."

Chappell wasn't absent from the judgement made on Green, remarking that Green is a "bully and nasty individual" who had pledged to resolve the pension problems BHS faced. As far as judgements go, Chappell has thus far avoided receiving focused blame by both the public and politicians. This comes even though Chappell bought BHS despite having a history of being thrice declared bankrupt and having no record of retail management experience. It was over thirteen months of Chappell's ownership that BHS, formerly known as British Home Stores, deteriorated to the point of having to enter administration.

The circumstances surrounding the downfall of BHS were described as a "blight on the reputation of British business" by Simon Walker, Director General of the Institute of Directors, with MP Frank Field declaring on national radio "we've found he's [Sir Philip] not very good at retail." The spotlight almost entirely has been on a man who has been described as the "unacceptable face of capitalism".

In honesty, such a damning description is perhaps not unfair given the circumstances surrounding the sale of BHS for £1 amid evidence that Sir Philip used dividend payments to amass huge personal wealth while simultaneously failing to invest in the ailing BHS pension scheme.

What has been missed by the vast majority of media comment on the issue is that BHS's subsequent owner, Mr. Chappell and Retail Acquisitions Limited (RAL), continued the siphoning off of BHS' resources. This was epitomized by a charge of £11 million to BHS from RAL for "salaries and fees", as well as a failed attempt to transfer £1.5 million to a RAL company owned by a longstanding friend of Mr. Chappell. These actions, whether performed by Sir Philip Green or Mr. Chappell, are not illegal, even if they raise questions whether such practices should be more regulated.

Mr. Chappell has a history of bankruptcy, and while he claims to have entered into the purchase of BHS with £120 million in capital, the money was in the form of three loans, each of £40 million, with each one needing to be paid off before the next would be granted. In real terms, then, RAL was entering into the sale with only the pound required to complete it. Even more damning for Mr. Chappell's actions is the now infamous supposed balance sheet of BHS at the time of sale.

The misleading construction of the balance sheet, supposedly by Sir Philip, has been widely documented. What has been less widely reported is that this balance sheet also carries the signature of Mr. Chappell. This could indicate that he believed that BHS had a working balance of £94 million which would show extremely poor due diligence on his part, not a good sign in someone set to lead one of the UK's leading high street firms. Alternatively, Mr Chappell knew the balance sheet was misrepresentative, in particular the money required for pension liabilities, in which case he knew that BHS needed urgent investment, or it would fail. Either option is clearly damning.

The future of BHS in 2015 when it was sold was undoubtedly uncertain. Without investment it might well have failed, and the situation it founds itself in June might still have occurred. The extent to which Sir Philip Green was responsible for this is something for others to decide by themselves. What is clear, however, is that Mr. Chappell's actions in continuing to take money out of the company sealed the fate, all the while apparently searching for personal gain. We can never know how much, if any investment would have changed the fortunes of BHS in 2015. But what matters is that we will never know, as Dominic Chappell never actually tried.

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