KPMG raised concerns over Retail Acquisition's ability to continue to trade and fund both BHS
PARTNERS from Deloitte, KPMG and PwC were grilled by MPs in the latest joint business, innovation and skills and work and pensions committee hearing as part of Parliament’s bid to explore the backdrop to the spectacular downfall of BHS.
KPMG partner, David Clarke, whose firm performed an advisory role to the BHS pension schemes, told the hearing that it had raised concerns over Retail Acquisitions, and sent them to both the retailer and the raft of other advisers before the sale of BHS took place.
Clarke revealed that he and his team “were particularly concerned about its ability to continue to trade and fund both BHS – which was clearly loss-making – and the [pension] schemes.”
He said the firm had submitted its concerns to the group in writing on 25 February 2015.
“These included what working capital facility they would have and what security packages would be in place, a deal timetable and whether the buyer had started pensions due diligence, so they understood what they were acquiring.”
The cross-party group of politicians heard how the BHS pension deficit had rocketed to £274m in 2016 from just £61m four years earlier. And when the business collapsed earlier this year, its 22,500 pension scheme members, where most had less than £18,000 in assets – the deficit was estimated to have mushroomed to £574m.
Deloitte partner Tony Clare, meanwhile, told the committee that the High Street retailer had not made a profit for ‘seven or eight years consecutively’.
Clare was enaged by Tavata, to lead a pensions team working on ‘Project Thor’, the entity created to restructure the BHS pension scheme.
Clare told the hearing: ‘The Arcadia Group was no longer willing to support the business indefinitely, and the alternative was insolvency. Thor was one of three strands to avoid this. These were restructuring the pension scheme; the owners of BHS writing off a £200m loan, and key stakeholders supporting the move, which included landlords taking an impairment on rents.’
Richard Cousins, a PwC partner, who also advised Tavata on the pension scheme from 2009 to mid- 2013, said: ‘From the 2012 actuarial valuation, it was very clear that the cash fundamentals were at the long end, with projections for 22 or 23 years, which was a serious concern.’
BHS management had taken the decision to “pause” the Project Thor pension rescue plan, in late 2014 so management could concentrate their efforts on trading, the committee heard.
By February 2015, the rescue plan was aborted as the likelihood of a BHS sale loomed ever larger, the MPs were told.
Arcadia was happy to stump up some £50m into the pension scheme in a bid to help it back into a fully-funded position, the hearing heard.
KPMG’s Clarke, said: “There were a number of examples of Deloitte’s estimated outcome analysis where we didn’t agree with some assumptions.”
While a draft proposal was agreed with the trustees and forwarded to The Pensions Regulator it was ultimately shelved so the business could try and exploit the opportunities presented by Christmas.
The next – and third – panel hearing will take place on 25 May and will include advisers to Retail Acquisitions and will include an as yet unnamed representative from Grant Thornton.
On 8 June 2016, the committees will question BHS management, the RAL board, and Dominic Chappell, the former racing driver who bought BHS for £1 from Sir Phillip Green when it was saddled with debts of over £1bn and a massive pension deficit.
On 15 June 2016, the committees will question tycoon Sir Philip Green.