Auditors and advisers slammed for BHS mess

BHS shop front
Tom Herbert
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An excoriating MPs' report into the sale and subsequent collapse of BHS has blamed leadership failures, individual greed and ‘group think’ for contributing to the demise of the High Street retailer.

While the investigation into the store’s slide into insolvency blamed former owner Sir Philip Green and Dominic Chappell, who purchased the group from Green for £1 in March 2015, advisers Grant Thornton, auditors PwC and the Financial Reporting Council all came in for varying degrees of criticism.

The report from the work and pensions and business, innovation and skills select committees singled out Green, the billionaire former owner of BHS, alleging that he had “systematically extracted hundreds of millions of pounds from BHS, paying very little tax and fantastically enriching himself and his family, leaving the company and its pension fund weakened to the point of the inevitable collapse of both.”

However, it also criticised advisory firms who “either did not consider the reputational risk or demonstrated a remarkable level of ‘group-think’ in relying solely on each other’s presence” when assessing the group’s financial position.

Expensive badge of legitimacy

Advisers such as Grant Thornton were labelled by the report as an “expensive badge of legitimacy for people who would otherwise be bereft of credibility”, and “content to take generous fees” despite expressing concerns over the viability of the business and its future.

Prior to 2015’s takeover of BHS by Chappell’s company Retail Acquisitions (RAL) Grant Thornton and legal firm Olswang undertook due diligence on BHS, and although the committees found the due diligence was “detailed and rigorous”, the firms were seen as “preoccupied with how their fees would be paid following the completion of the transaction”.

Evidence submitted to the committees stated that the two firms earned fees of £1.75m in relation to the deal alone, which were higher due to its success. During a tetchy appearance before the committee Green told MPs that the fees in total ran to more than £8m.

Neither Grant Thornton nor Olswang were blamed for RAL’s decision to complete the purchase of BHS, but although both advisers highlighted significant risks to the future of the business, including potential cashflow issues, Grant Thornton was criticised for producing a report “which could have more clearly explained the level of risk associated with the acquisition and offered firmer observations”.

The report was also critical of Chappell’s decision not to release his advisers from their formal obligations, denying them the opportunity to explain their actions in the public domain.

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28th Jul 2016 14:59

"...risks to BHS meeting its cash flow requirements” identified?

The most cursory view of the accounts in 2014; net current assets £186 million in the red and equity shareholders funds £256 million also in the red and more of the same for many years previously could have told them that.

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28th Jul 2016 21:51

In 1985 BhS had gross sales in excess of £600m and trading profit in excess of £60m. I should know - I was the Financial Controller. I moved on in 1988. I weep for the way it has been neglected. Somebody somewhere should have acted much sooner.

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