Lord Myners used parliamentary privilege to raise questions on the finances of BHS and Sir Philip Green yesterday. According to the FT he said:
There are clearly issues here of potential fraudulent preference, of creditor preference, and of misappropriation of corporate assets under the direction of the directors of the company. These things must be investigated properly, openly and transparently.
And:
HMRC must look into the ownership structure and how it managed to convince itself that these businesses are owned by Lady Green in tax-free Monte Carlo, but run by her husband” from the UK, where he is subject to tax but receives little income.
I would add and do not need privilege to do so because they are aimed at regulators, that why is it that we cannot see the accounts of Jersey companies and why is it that IFRS 8 removes the need to report related party transactions in a group? Both moves, happily endorsed by accountants time and again, make public investigation of this case very difficult.
And PWC still have a great many questions to answer as well.
Some answers would be useful now.
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So, we’ve got the Reverend Green and now Sir Phillip Green. This brings the colour Green into disrepute. Will the Green Party have to find a new name?
🙂
And the notorious Michael Green, nom de plume of the discredited Tory arch-troll and internet shyster, Grant Shapps.
SOYLENT GREEN ?
1. You should adopt the convention that all knights appointed under Blair earn inverted commas. Thus: “Sir” Philip Green.
2. Note that his parents spelled Philip correctly: well done them.
3. Might “Sir” Philip Green be reasonably described as a wide boy? Perhaps the committee of MPs should make a public pronouncement on that ticklish issue.
I couldn’t understand why the Philip Green and Lady Green arrangement regarding the BHS shares didn’t appear to be challenged by HMRC? Perhaps it was and this fact didn’t leak into the public domain.
If Philip Green isn’t properly remunerated for his services were the shares truly gifted to Lady Green with no strings “attached”.
The trust legislation is very widely drawn and the tax advisers to the Greens must go to great lengths to show that Lady Green is not a bare trustee for Philip Green in relation to the shares? ( that is she is not merely holding the shares in her name while he maintains the beneficial interest in them.
Of course (tongue firmly in cheek), Philip Green did not benefit in any way from the huge dividend paid a few years back to his wife!
I think it is just another good example of the nonsense that the law has made of doing business.
The laws of private ownership, trusts and beneficial interest are long overdue reform in my opinion.
I understand that Green performed the classic asset stripping routine of hiving off the BHS property portfolio to its holding company located offshore. The BHS business then paid rent to the holding company.
I heard on the radio a few days ago (File on 4) that landlords get the second payout from leftover assets in a bankruptcy (the first I guess is the taxman). Is this true, Richard?
It’s about time that economists started to recall that there is a third factor of production. The owners of capital are stripping more and more from labour, but so are the owners of land, apparently under the radar.
That payout order is now history
But remember – landlords do have the asset still
Thanks, I did wonder. Someone should tell File on 4 (me, perhaps).
But this is totally legal and widespread. I don’t think Green can be accused of doing anything underhand by splitting the assets. Pensioners haven’t got the right to oppose dividend/asset distribution when the pension fund is not in deficit.
There is already a lot of legislation to determine what is the required level of assets in the pension fund. I see no proof that Green removed assets from the company in an inappropriate manner. The current regulation doesn’t completely insulates pensioners from the company’s credit risk. They implicitly own a slice of the company. Maybe it should be different, but that’s not the current law. When a company fails, pensioners are likely to lose money under the current system. It’s how the system is designed.
I think you are really arguing against limited liability here. A shareholder has the right to distribute capital from a company and creditors cannot claim against such distributions (you could argue that’s the entire point of a company). Unless you can prove that he knew the pension fund was insolvent and the company likely to go to the wall back when the distribution happened (back in 2004), I think you have no leg to stand on.
Green bought the company for 200m (and allegedly lost another 200m in forgiven loans). If limited liability didn’t exists, the company he bought would have been worth a lot less. So you can argue the main beneficiary is the person Green bought the company from and not himself. They got 200m for something that’s now worth nothing. And they got the money 16 years ago, only 3-4 years earlier than Green. Why are they utterly blameless?
Many of Green’s companies had a deficit of assets fir many tears
Maybe you ought to check your facts
And understand what that means
acarraro – lots of things are (or have been) legal and widespread, I don’t think that adds much value to the discussion of whether it is right or wrong or defensible or a business model to be encouraged or condoned in future.
If the law was the guide to human morality, we would all be ruled by judges who were forbidden from changing the commandments or whatever other tablets or scriptures or scrolls had been handed down from above eons ago.
Somewhere in this world, business and finance must meet its maker, and that will always be the court of human opinion no matter what the court of law may say.
What are the facts I am missing? I would be happy to be enlightened.
As far as I know the dividend payments were in 2004. There is a 6 year claw-back provision in the pension legislation, but the company pension fund was in deficit only from 2009 (5 years later) and only got in real trouble in 2012. You could argue that Green should cover the 2009 deficit since that’s inside the 6 year legislation. I am guessing the 40m he is offering is probably consistent with this, but I don’t really know.
The explosion in the deficit is due to the collapse of BHS: the capital requirements calculations effectively assume that the pension fund has a claim on the profits of the original company. When the company closes, that’s basically worth nothing. You could argue that this all or nothing valuation approach is inherently wrong, and the capital requirements should take the reduced company profits in account. That’s a reasonable complaint. But you have to accept that harsher rules on the safety of pensions would have most likely caused BHS to close earlier.
As far as bad management or low investment, I am sure they are fair accusations. Clearly the company was not successful. But you cannot force shareholders to provide more capital to a company and keep limited liability. What do you think would be fair? Maybe we should extend the claw-back period to 10 years, but 6 seems already quite a lot to me. Given that low rates and legislation have basically caused most pension funds to close already, this problem is going away anyway. I am sure he put less and less effort in the company as he realized all future profits would likely go to pensioners. Was he morally obliged to work for free? Other companies sold themselves to their pension fund. Maybe he should have done that rather than involve a questionable character… Were the pension fund trustees willing to take ownership of the original company? Willing to invest in it?
At the end of the day this is really a question about leverage. Green bought BHS and made it more risky by extracting money, hoping it would still pay off and knowing his downside was very limited. I think this is actually socially useful. There is such a thing as too little risk and too little investment. In this case it went wrong, but I think on average the additional risk does make everybody better off. I wouldn’t approve of legislation that made this illegal as I think it would make everybody worse off in the long term. I would judge such legislation like the regulation on liquids we currently have in airports: does it reduce risk? Maybe a tiny bit. Is it worth the discomfort and the additional wait? I think certainly not.
You can argue that the state should fill this role more since it has the ability to distribute the upside more justly and it has a large risk capacity. I see little evidence that the states successfully filled this role in the past. There are exceptions like Singapore wealth funds and other entities, but they are exceptions.
You ignore the fact that the dividend was paid without distributable reserves being available
The question is why it was ever considered legal in the first place
And why the accounts were not qualified
If I was the liquidator I would commence an action against the auditors for the whole sum
Talking about questions to well know people, it seems from this article – tucked away at the bottom of The Guardian’s web pages, that there are quite a few MPs who are about to have questions to answer. The example of Gisela Stuart the author cites is a real classic:
http://www.theguardian.com/commentisfree/2016/jun/07/mps-british-politics-transparency-register-of-interests-finances
Staggering
And says a lot about her
A reminder that sod all has changed since the ‘expenses scandal’ other than the IPSA website which tells you nothing of real value as the stuff that needs to be known is hidden.
All I learned from the IPSA site was that my vastly wealthy M.P claims for switchblades for his interns and bar snacks at the House of Commons.
When I was a teacher I still Had to pay for my lunches ( while arguably contributing more to society than many of the Westminster wretches).
‘switchblades’ should read ‘sandwiches.’ Crikey, that spell-check has a life of its own.
I sincerely hope my M.P hasn’t been buying switchblades out of Government money!
🙂
Yes – and why she shares a platform with Boris.
It could very well be that conflicts of interest are now so ingrained in MP culture that they are just not seen as a problem anymore.
It’s a very dismissive attitude.
Nice find Ivan – transparency and accountability must always start at the very top and be cascaded downward.
Clearly that is still not even the case in our so-called representative democracy. Yet another good example that it is not representative and not democratic!
My biggest question to Green is:
‘Did you think that the toga party was a bad idea after all’?
The only really important question is: was “Sir” in cahoots with the spiv he sold the company to? If he was, then he is, I hope, in real trouble. But I’ve seen not a whisper of evidence that he was.
Having watched today’s entertainment into the BHS debacle from the business, innovation and skills parliamentary select committee, I can only admit to complete astonishment that Sir Philip Green, Dominic Chapell and several others with their fingers in this fine example of “crapitalism” at its worst, have not already been locked in the Tower of London for their appropriate punishment to be delivered once this trial by politicians has concluded.
I am looking forward to Green’s rebuttal which will no doubt be very robust and be further demonstration that the world of finance and business is still dominated by spivs and chancers of the highest order.
As for the Pensions Regulators and any government dept with responsibility for oversight of large corporate transactions, asleep at the wheel seems the best description.
http://parliamentlive.tv/Event/Index/b5b92aa9-0a99-4c15-9740-71b58552a61f