Former BHS owner Arcadia Group agreed to protect business

Retail Acquisitions, the former owner of BHS, pledged to keep all funds in the business and plough any proceeds from the sale of the group’s properties into its day-to-day running until a deal had been struck on the future of the BHS pension scheme, reports The Guardian.

Documents sent to the parliamentary inquiry into the demise of BHS, which administrators are now winding down with the likely loss of 11,000 jobs, are understood to reveal three protective covenants attached to the sale agreement with Sir Philip Green’s Arcadia Group, which sold BHS to Dominic Chappell’s Retail Acquisitions for £1 a year before it collapsed.

The sales agreement between Retail Acquisitions and Arcadia Group will be published by the work and pensions committee on Monday morning.

The first covenant states that “all monies in or available to BHS at completion” of the deal, including cash and loans provided by Arcadia Group, “shall be used for the sole purpose of the day-to-day running of [BHS]”, informed sources said.

A second states that “all proceeds realised by [BHS] from the sale of the properties shall be retained by [BHS] and used for the sole purpose of the day-to-day running of the business of [BHS]” until a compromise agreement on the company’s pension funds had been agreed.

The final clause states that “no steps are taken by the buyer or [BHS] that would reasonably be expected to adversely affect the ability of [BHS] to continue to operate as a going concern and to pay their debts as they fall due”.

Paul Budge, Arcadia’s finance director, said the group had put the covenants in place because it “didn’t want to give [Retail Acquisitions] wriggle room to take money out of BHS”. Green has been heavily criticised for selling the business to the little-known group of entrepreneurs led by Chappell.

Details of the covenants were sent to the parliamentary inquiry by Arcadia just days before Chappell is due to give evidence on why the business was forced to call in administrators in April leaving a £571m pension deficit.

Chappell, who will go to parliament on Wednesday, will be asked to explain why his group was paid £25m from BHS in the 13 months it controlled the retailer before it went bust. That included £2.8m in management fees, £2.1m in salaries and wages, £11m in legal and professional fees and £10m in interest payments.

The former bankrupt is personally understood to have received about £1.5m from an £8.4m loan taken out of BHS by its new owners in March last year just days after buying the struggling department store chain. Retail Acquisitions has said it put £10m into BHS.

The payments will be closely scrutinised by two parliamentary inquiries which are looking into how money flowed out of BHS under Retail Acquisitions’ ownership and during its 15-year stewardship by Green, who also faces criticism.

The Green family and fellow shareholders received more than £580m in dividends, rental payments and interest on loans to help fund a lavish lifestyle.

It emerged on Sunday that several months after selling BHS, Green’s Arcadia Group agreed to pay £10m to Retail Acquisitions. Arcadia says the money was part of the final settlement of the deal to sell BHS to Retail Acquisitions, a normal part of settling up a major transaction.

Budge said the money had been paid directly to BHS’s bank, HSBC, and not to Chappell’s buyout group, in order to settle an overdraft facility.

Green and Chappell have both blamed the other for the demise of BHS in an increasingly acrimonious dispute.

Lord Myners, the former chairman of Marks & Spencer and a former foe of Green, said it was “rather like giving the keys of your car to a five-year-old and allowing the five-year-old to go off and crash the car”.

Green is also under pressure to help support BHS’s pension pot, which is being assessed by the Pension Protection Fund, because of a heavy funding deficit built up under his ownership.

The entrepreneur, who will appear before the parliamentary inquiries on 15 June, is understood to be attempting to develop a plan to keep the BHS fund out of the Pension Protection Fund, under which members who are not already claiming their pension would suffer a 10 per cent cut.

The plan is likely to involve a cash injection alongside a reworking of Project Thor, a restructuring that Arcadia previously considered which involved buying out members of the pension scheme who had only worked for BHS for a few months and built up only small pension pots. They would only be entitled to a small payout eventually but offering them a cash lump sum instead would reduce the scheme’s long-term liabilities.

A spokesperson for the PPF said that it had not yet been approached with a new proposal and it is understood that the Pensions Regulator has not been approached either.

A spokesman for the regulator said: “Our anti-avoidance investigation continues and our chief executive has given a clear commitment that we will have made significant progress by the end of 2016. It’s important that we do not prejudice this complex case and are able to progress it quickly. We are therefore not making any further comment at this time.”

Chappell did not respond to requests for comment.