GRANT THORNTON and other advisers were “content to take generous fees” despite big concerns over the viability of the new owners of now-collapsed retailer BHS.
In a scathing report into the travails of BHS, including the role of Sir Philip Green in failing to halt its decline, and subsequent sale to Dominic Chappell and associates, advisers were criticised for relying on each other’s’ presence by the Work and Pensions and Business, Innovation and Skills Select Committees.
In the case of Grant Thornton and Olswang, the accountants and lawyers undertaking due diligence on BHS on behalf of Chappell’s company Retail Acquisitions (RAL), the committee said they were “preoccupied with how their fees would be paid following the completion of the transaction” – fees that Sir Philip had previously stated ran to a combined total of £8m.
However, the committees also found the due diligence undertaken by the two firms – from the partial documentation the committee saw – was “detailed and rigorous”.
A number of concerns about the potential for BHS’ insolvency were flagged by both Grant Thornton and Olswang. While the accountants’ due diligence report was “more muted in tone”, it did highlight significant risks, including potential cashflow issues that could bring BHS down. It also questioned the plan – ‘Project Thor’ – to turn around BHS’ near £600m pension deficit, and that without the turnaround BHS’ viability was in question.
In response to Sir Philip’s earlier criticism of the role of Grant Thornton and Olswang, the committees said it was “disingenuous of Sir Philip Green to cite Dominic Chappell’s employment of Olswang and Grant Thornton as evidence of his credibility as a prospective owner of BHS”.
The two were criticised for having “sheltered” behind client confidentiality and legal privilege when the public would have been better served “by full and frank disclosure to legitimate parliamentary scrutiny”.
Neither Grant Thornton nor Olswang can be blamed for the decision by RAL to go ahead with the purchase, said the committees, but the accountants – who had deployed a large team – could have produced a report that more clearly explained the level of risk associated with the acquisition and offered “firmer observations”.
“Grant Thornton and Olswang were increasingly aware of RAL’s manifold weaknesses as purchasers of BHS. They were nonetheless content to take generous fees and lend both their names and their reputations to the deal,” said the committees.
A spokesman for Grant Thornton said: “Grant Thornton’s only role in the pre-acquisition period involved carrying out financial due diligence on behalf of [RAL]. Following the acquisition, we were working for BHS to provide consultancy services to the management team. We undertook our work in the belief that we could help BHS’ management team to turn the business around, and find a sustainable solution for the pensions scheme.
“It is regrettable that this hasn’t been possible, but we wouldn’t have been a part of that work if we didn’t believe we had experience of real value to share with BHS and its management.”
The Financial Reporting Council’s investigation into PwC’s role as auditor of BHS for the two financial years prior to the sale process was also welcomed by the committees in their report. However the committees aimed a dig at the accounting watchdog, saying they would “sincerely hope” the FRC can report back “significantly quicker” than the two years in which in currently aims to conclude investigations.