BHS collapses into administration as rescue deal fails

BHS has officially collapsed into administration after failing to agree a last-minute deal to rescue the department store chain.

The demise of the retailer, which employs 11,000 people, is the biggest failure on the high street since that of Woolworths in 2008.

Duff & Phelps has been appointed as administrators and will keep stores open as it tries to find a buyer for BHS.

The government is expected to make a statement on the failure of the 88-year-old retail group in parliament this afternoon, either through Sajid Javid, the business secretary, or Anna Soubry, the business minister.

The Pensions Regulator has confirmed that it is investigating BHS, suggesting that the regulator is considering whether to force Sir Philip Green, the former owner of the retailer, to contribute towards the company’s £571m pension deficit.

In a statement, Duff & Phelps said: “The group has been undergoing restructuring and, as has been widely reported, the shareholders have been in negotiations to find a buyer for the business. These negotiations have been unsuccessful. In addition, property sales have not materialised as expected in both number and value.

“Consequently, as a result of a lower than expected cash balance, the group is very unlikely to meet all contractual payments. The directors therefore have no alternative but to put the group into administration to protect it for all creditors. The group will continue to trade as usual whilst the administrators seek to sell it as a going concern. Further announcements will be made as appropriate in due course.”

Duff & Phelps was understood to have had more than 30 expressions of interest in buying BHS by midday on Monday.

The collapse of BHS presents another problem for the government as it attempts to save thousands of jobs in the steel industry. The retailer had failed to secure the emergency funding that it needed to pay wages and rent.

Javid said the government was in talks with BHS management about the retailer’s collapse.

Dominic Chappell, the owner of BHS, said in a letter to employees on Sunday night: “It is with a deep heart that I have to report, despite a massive effort from the team, we have been unable to secure a funder or a trade sale.”

He indicated in the letter that staff wages for this month would be paid by the administrators.

Chappell led the Retail Acquisitions consortium that bought BHS from Green for £1 last year. However, the retailer has struggled with falling sales, a hefty rent bill and a pensions deficit.

In a rare public statement, the Pensions Regulator said it is investigating BHS’s pension deficit amid calls for Green to contribute towards to the scheme.

“We can confirm that we are undertaking an investigation into the BHS pensions scheme to determine whether it would be appropriate to use our anti-avoidance powers,” a spokesperson said.

“Such cases are complex. There is a clear process that must be followed and this can sometimes take a considerable amount of time. We are unable to provide a running commentary on case investigations or confirm the targets of our investigation.”

Green has already held talks with the Pensions Regulator about injecting cash into the company’s pension scheme. He is thought to have offered £40m in cash and a £40m loan secured against BHS’s assets.

Trade unions described the collapse of BHS as devastating. John Hannett, the Usdaw general secretary, said: “This is devastating news for the employees of BHS and we urge the company to change their attitude to trade unions and begin a dialogue with us at this difficult and worrying time.

“We also urge the administrators and the company to comply with the law, consult with staff and Usdaw as the union for BHS workers. We don’t want to see BHS staff locked out of discussions, sent to the back of the queue of creditors and treated like fixtures and fittings, as happened at Woolworth’s.

“The government needs to intervene now to protect taxpayers from picking up the bill for redundancy payments and safeguard the Pension Protection Fund.

“We are in touch with our members working in BHS to reassure them that we will provide the support, advice and representation they require.”

At the retailer’s store in Oxford Street, central London, customers were waiting outside before it opened as usual. Nicolette Kadzeya, 39, who was there with her three children, was looking to exchange an unwanted item. “I think the problem with BHS is that this branch is very up to date, but if you go to the branch in Surrey Quays, it’s as if you have gone back in time. It’s like you’ve gone back to the mid-90s,” she said.

“Some of the branches which are outside London are not that well
maintained. It’s a bit old fashioned as well. They are good for school
shoes but it’s not really up to date.”

The demise of BHS comes a month after the retailer appeared to have secured its short-term survival by persuading landlords to cut its rent by up to 75% at 87 shops. However, even as landlords, suppliers and creditors voted overwhelmingly in favour of the survival plan, known as a company voluntary arrangement, BHS warned that it needed to find £100m to continue trading.

It attempted to raise the money with £30m of property sales, a new £60m loan from private equity firm Gordon Brothers and £10m from changing the terms of its agreement with suppliers. On top of this, it needed to bring in another £70m from selling property to pay off a separate loan from Grovepoint.

But it failed to raise enough cash from property sales and the deal with Gordon Brothers fell apart. Talks with the private equity firm were already complex, because Green needed to release security that he held over BHS’s assets for the loan to go through.

Green, who bought BHS for £200m in 2000, is understood to have been ready to agree to the loan, but the funds from Gordon Brothers were not enough without the property deals, and the strict terms led to the talks collapsing.

Talks over the weekend with Mike Ashley’s Sports Direct also appear to have come to nothing.

BHS’s chief executive, Darren Topp, said on Sunday that £60m needed to be found urgently to keep the company afloat. “What was on the table wasn’t sufficient and we have been working in the last few days to fill the gap,” he said.