In 1973 the the prime minister, Ted Heath, said:
"It is the unpleasant and unacceptable face of capitalism, but one should not suggest that the whole of British industry consists of practices of this kind"
He did so in a House of Commons statement on the Lonrho affair.
Ted was, of course, a Tory. I wonder if we will have any of his successors saying similar things of the asset stripping at cost to the creditors, pensioners and others at BHS?
Of course there is more to learn about the failure of this company. But prima facie it would appear Sir Philip Green sought to offload his responsibilities to a new management headed by a person who had twice been bankrupted and who has now taken the group to failure whilst appearing to extract considerable reward for related parties.
There are, at the very least considerable questions to ask in that case. The most pressing are threefold. The first is whether the duties of directors of a company are properly defined. I do not think so, the obligation to employees, for example, being far too vague.
Second, there must be doubt as to whether we require suffice enough capital in companies to protect creditors. When limited companies were introduced the protection of creditors was of paramount importance. We seem to have forgotten that. The buffer of sufficient capital is one way in which they are protected.
And third, a review on the liability of directors is well overdue.
And if the givernment does not note these questions then opposition parties should.
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Current legislation requires that Directors should not continue to trade when the company is effectively insolvent.
Where the company has obligations to fund a final salary pension fund how is this liability factored into ongoing net asset / net liability calculations when considering whether to continue trading?
The Pension Protection Fund now acts as a funder of last resort and the question of moral hazard comes into play when deciding on trading continuity.
I think that a massively important question
Moral Hazard is the name of the game-the next in line will be Boots who have been reported to make bogus health checks on their own staff because it is Government funded. The State is not being shrunk when it comes to moral hazard.
The pension schemes were the focus of a Commons debate on the collapse of BHS tonight, in which Richard Fuller, a Conservative backbencher, described Sir Philip and BHS’s collapse as the “unacceptable face of capitalism.”
“It does seem appalling that the PPF is being abused in this way and I do suspect that BHS is not the only company in this particular position.” Mr Fuller said that if Sir Philip had sold BHS for £1 to avoid pension liabilities then he had accepted the “equivalent of 30 pieces of silver”.
(Lifted from Telegraph reporting)
The media coverage has been less than forthright about BHS with muted criticism limited to “Philip Green will have some questions to answer”. Ministers, both Red and Blue, need to answer why they were in such awe of the man. Why was he honoured after appearing to exploit tax avoidance? Why was he appointed as a Government adviser after the dodgy loan to enrich his family? How did the pension deficit reach such huge proportions with only a dismissive shrug of the shoulders from the ‘professionals’ appointed to protect the pension? Where were the protecting agencies?
Dominic Chappell, says “No one is to blame”. Really? He trousered large sums from the business, Green did the same. For what? Were they not responsible for, employed to manage, the conduct of the business? Nor is Green and Chappell’s laissez-faire capitalist attitude unique, Lord Green published a tome on morals in business perhaps based on his experience of banking ethics in Mexico. He too was ennobled post hoc and took his seat at the cabinet table. Perhaps it was the precedent of Baron Mandelson with his relaxed attitude to wealth that set the benchmark.
The changes in policy such as the moves to reduce access to judicial remedy, to restrain the right to free speech and to muzzle academic research that does not suit a neolib dogma, make more sense if one assumes a complete absence of morals in Westminster and the square mile. They make more sense if one assumes they are in place to prevent exposure of questionable behaviour that is the de facto norm.
Also a review is required of leveraged buyouts and whether the assets of the company being acquired can be used as collateral for the new owner.
Its a pity that the BHS pension fund cannot seize the Lionheart which I presume will be located in Monaco.
If everything these mega rich people do is just the right side of legal but morally questionable, it seems they will ride the storm, carry on regardless and be comforted by believing how successful their business acumen is. Trust and honour is in very short supply.
They can be on the wrong side of legal and get away with it!
“Over the past 16 years, the BHS pension fund has fallen from a £5m surplus into a £571m deficit”
This has the same stinking smell as the Maxwell debacle, from which lessons were supposedly learned and new corporate regulations especially on pensions put in place.
And now this new debacle, from the same Philip Green (and his cronies who he offloaded the liability to once he had stripped it bare and filled his own tax haven coffers) who was raised on a pedestal by Cameron as “public spending tsar” – what a sick joke and clearly yet another indication of Tory failed logic!
Q. So how can this happen yet again?
A. Because that is what lies at the heart of financial capitalism, make a profit at any expense! (you can dress it up and regulate it as much as you like, but the asset strippers and corporate chancers will always find a new way to rape and pillage)
http://www.theguardian.com/business/2016/apr/25/bhs-philip-green-family-millions-administration-arcadia
From what I’ve read so far, Richard, there seem to be some parallels with what went on at Rover after it too was handed over to a “turn around” team who made millions out of the company’s demise.
Indeed
Quite – and where are the cast iron regulations to prevent this type of modern day piracy?
Nowhere to be seen, because this is after all how the City of London works its own version of “Merlin’s Magic” – enriching the few at the expense of the many!
Philip Green follows in the dirty stench ridden footsteps of all the other robber barons and corporate asset strippers that have walked the halls of power in this country and every other.
But don’t worry, Sir Philip is taking possession of the de rigeur £100 million yacht which is the usual cliche-these people never disappoint!
One point not directly referred to is that Green bought BHS for £200 million in 2000, yet managed to “pay” at least £450 million in “dividends” (!!!) to his Monaco domiciled wife, so shifting the core assets of BHS outside UK control and HMRC reach.
Frankly, the only “lifting up” Green deserves is that meted out to the baker in the story of Joseph in Genesis (see Chapter 40, verses 16-22)
Interesting article from Michael White (with cross reference to a 2006 blog by Richard) makes good reading on the need for a large amount of legal reform on the obligations of directors, shareholders, accountants and the lawyers themselves – all of whom use the current laws to justify this type of rape and pillage in extracting their “just rewards” from their private thiefdoms no matter what harm is done to their other stakeholders and society as a whole.
There is nothing just about this type of behaviour, not matter how legal it may be at present!
http://www.theguardian.com/business/2016/apr/26/philip-green-blair-gave-him-a-knighthood-cameron-gave-him-a-job
Before the usual suspects turn up and point out the “He hasn’t done anything illegal”, or that we lefties are just envious of success, may I point out that morality has just as fundamental role in society as the law, that the the law is imperfect, and democracy allows us to challenge and amend it, when it doesn’t chime with our concept of morality.
And to the accusation of envy: does any mortal really need three yachts, a Gulfstream jet and a helicopter?
‘Need’ doesn’t come into it, Helen. In the neoliberal world these are trophies – badges that demonstrate that mine is bigger than yours – by which I mean, pile of money, of course.
And of course, anything will be tolerated as long as it/they have pots of money. How else to explain the continued acceptance – nay, fawning behavior – by his peers and fellow feral rich of that most odious and loathsome creature, Bernie Ecclestone.
You’re right of course,Ivan. The question is, does money make you amoral, feral, desensitised to your fellow beings, or do the likes of Green have a morality deficit that allows them to profit from an imperfect system with no sense of responsibility?
I know the answer, by the way.
Nice bit of banker humour on the social networks today, sums things up quite nicely I thought!
http://www.thecanary.co/2016/04/26/this-advert-for-young-banker-of-the-year/
The Augean Stables of these business set ups need a great clear out. All the shenanigans of who owns what and ‘management fees’ going this way and that way and companies who are subsidiaries of other companies like a Russian Doll so that things can be run down and money creamed off and peoples’ lives wrecked-all these needs a rethought from first principles.
If this crap isn’t cleared up then we are slowly moving towards ‘pitchforks’- when it reaches that point, people like Sir Phillip will not like it up’em as they squeal for Government help.
Private Eye has had some good articles on this since the transfer of the shares last year. As well as looking into the pension issue, hopefully someone will look into the ownership. All the press comment at the moment is about Philip Green but when the question of tax on dividends came up, it was his wife owning the shares from Monaco.
The Pension Regulator should not have permitted those payments to Lord Green or his wife: nor should they have waved through the £1 transfer abd divestment of liabilities – they had and still have a clear brief to block exactly that transaction.
Given that the regulator is supine, it is unlikely that the Pension Protection Fund will exercise its powers to the full – but those powers are retrospective: it was anticipated that this kind of divestment would be attempted when the 2004 Act was drafted.
Also, the BHS pension fund trustees should now be seeking legal advice: there are interested parties who would bankrupt them just to make a point, however little money they’d recover doing so.
…And bankruptcy is less of a protection than, say, the members of a limited liability partnership would expect: the Nortel case established that the PPF’s recovery of a pension shortfall falls under the administrative costs, not as just another unsecured debt.
Interesting take on current events from Craig Murray, who by all accounts was previously a (sometimes rebellious) member of the “state establishment” but now thinks a revolutionary mindset is essential to see through all the cr*p we are being peddled day in day out.
https://www.craigmurray.org.uk/archives/2016/04/on-revolutionary-attitude/
I am glad somebody mentioned here that BHS has been trading for a long time while technically insolvent. The reason it did not go under was that it was supported, until Philip Green sold BHS, by the parent company. Both were under his control.
However, while continuing to trade while making massive losses from 2009 to 2014 creditors seemingly were all paid, except one. The BHS pension fund for whom an arrangement was made to pay any shortfall over a very long period of time.
I do not think any other creditors would have waited until 2036 to have their bills paid, but the pension fund was to wait until that date to make up any shortfall.
So that surely make the directors of BHS liable to the charge of unfair preference. In other words, BHS directors made sure their parent company was paid, and other trade creditors, but left the pension fund high and dry.
Difficult to see how Green can wriggle out of this one.
More on this in the morning if I get time
Today Michael White in the Guardian mentioned your view on the £1.3bn dividend paid in 2005 to Mr Green’s wife by BHS’s parent company Taveta Investments Limited. .
http://www.theguardian.com/business/2016/apr/26/philip-green-blair-gave-him-a-knighthood-cameron-gave-him-a-job
Prof Prem Sikka is of the same view as you were then, that the £1.3bn dividend should only come out of distributable profits – of which there were not sufficient to pay such a big dividend.
http://www.theguardian.com/commentisfree/2016/apr/25/bhs-shareholder-greed-high-street-retailer-divident
I am unclear how big corporations can completely ignore the Companies Act (I think S263 of the CA 1985 is relevant here)?
Clearly this is still relevant now. By loading up the parent company with debt to pay the £1.3bn dividend, BHS needed to be kept alive longer than probably necessary, partly to repay the parent company’s debt. It continued to pay its admin charges to the parent, and probably loads of other charges, too. That helped to keep the parent company in higher profits than it would have been if BHS had gone under some time ago.
Again, seems to me a clear case of the BHS management treating some creditors better than others. Parent company was paid, BHS pension fund was not.
I wish I could explain how this dividend was considered legal
Some may be able to do so
I can’t
Looking at the publicised numbers, what up the problem. Green paid £200million for BHS, he had £400million in dividends BUT when he sold out to the ex-racing driver and mates, he wrote off a £200million loan that BHS owed Arcadia. So all quitz?
Yes it does but it isn’t just about the money he has taken – the toga he wore was absolutely awful too.
Perhaps a little childish, but this is a strangely satisfying game!
http://www.thecanary.co/2016/04/27/this-online-game-lets-you-hit-david-cameron-with-a-mallet-until-he-turns-into-a-pig/