BHS sends shockwaves through high street with warning it could collapse owing £1.3bn

The beleaguered retailer’s proposed Company Voluntary Arrangement (CVA), filed at the High Court, has revealed that it the black hole in its pension fund now stands at £571m, on a buyout basis. The figure has ballooned by nearly £120m since the last triennial valuation in 2012, reports The Telegraph.

Landlords, the creditors BHS is attempting convince to give it a chance of survival, are owed nearly £517m.

The proposal, drawn up with KPMG, says that BHS will be unable to trade in its current form beyond 25 March, when its next rent payments are due.

“If the CVA proposal is not approved at the relevant meetings, or is otherwise not implemented, it is very likely that BHS Limited will no longer be able to trade as a going concern, which would result in the appointment of administrators,” the document warns.

BHS’s CVA will need the approval of at least three quarters of its creditors in a pivotal meeting scheduled for 23 March.

The proposal sets out three possible scenarios for the troubled retailer.

If enough creditors agree to the proposal, it says, some will recover all the money they are owed, while some landlords will get only 6.15p in the pound. The alternatives if BHS is forced out of business will leave landlords nursing even bigger losses, the document claims.

An administration period allowing specialist accountants to recover as much possible from BHS would mean some landlords would get 1.23p in the pound and others just 0.05p. The total losses to creditors in that scenario would be £1.1bn, according to the proposal.

If BHS tips directly into liquidation, all landlords could expect to receive 0.05p in the pound and the collapse would mean unpaid debts of £1.3bn, it is claimed.

“Because the treatment of landlords and other CVA creditors who are compromised by the CVA proposal is better than in the alternative… scenarios, the directors consider that the CVA proposal is fair compared to administration or liquidation,” BHS’s proposal says.

It calls for two years to turn itself around. If the retailer were unable to meet even the reduced bills it would have under the CVA proposals, creditors would have their original claims restored and “should be in no worse a position than if the CVA proposal had never been approved”, according to the document.

BHS’s proposal is asking the landlords of 40 of its least viable stores to accept a 75pc cut in rent and potential closure in 10 months. In a further 47 more viable stores it wants rent reductions of either 50pc or 75pc. In its 77 most viable store BHS wants to change from paying rent quarterly to monthly.

Even if the deal is accepted, BHS has signalled there will be significant job losses among its thousands of staff.

Alongside the attempted financial restructuring, the retailer said in its CVA proposal that its operational turnaround plan would “include reductions in staff numbers at head office and in store”.

The plans have been put forward by BHS management, led by chief executive Darren Topp. He was installed by a previously obscure group of financiers, accountants and lawyers operating under the banner Retail Acquisitions Limited. They bought BHS from Sir Philip Green’s Arcadia Group a year ago for £1.

Arcadia is owed more than £35m by BHS in the form of a secured loan. Secured creditors’ rights are unaffected by the CVA.