Accusations fly in Wilko collapse blame gameby
Liz Truss, Covid, greedy owners, naive managers and audit failures were all blamed for the collapse of retailer Wilko during a fiery government scrutiny panel in which fingers were pointed at all parties involved.
The demise of 93-year-old high-street stalwart Wilko was down to running out of cash amid former prime minister Liz Truss’s mini-Budget chaos, the retailer’s chair told MPs in a testy parliamentary scrutiny panel on Tuesday.
Lisa Wilkinson, granddaughter of the founder, said she was “devastated” for letting down customers, workers and suppliers, but denied greed caused the firm to implode leaving a £625m debt.
Wilkinson told MPs on the Business and Trade Committee that the firm did not have enough money to plug a £50m pension shortfall, with taxpayers left to cover £42m of redundancy payments following Wilko’s bankruptcy in August.
Wilkinson was asked if greed bankrupted the high-street stalwart, as administrators PwC reported the owners had been paid £9m in dividends since 2019 even as the firm was sinking.
“No,” she told MPs. “Wilko failed because we ran out of cash. That caused the downfall in the end.”
Duty to shareholders
After stating the firm had a duty to shareholders, she listed a number of internal and external “contributory factors” that led to the demise of the firm before it was able to implement a turnaround strategy.
The firm paid its landlords in full throughout Covid, continued paying staff and didn’t furlough its workforce during the pandemic, she said, adding that she should have taken government handouts instead. However, the significantly reduced footfall, cost-of-living crisis and the loss of support from key suppliers and financiers eventually caught up with the firm.
MPs said Wilkinson was seeking to blame everyone else while absolving management, and the committee’s chair, Liam Byrne, forced her to apologise in a tense exchange.
“I don’t know how to put into words how sad I am that we have let down all our customers, all our team members, our suppliers, our advisers genuinely,” she said. "I don’t know what you want me to say,” she added.
"Sorry was the one word I was looking for,” said Byrne.
“You can have the word sorry – of course I’m sorry, if you wish me to say the word sorry. I thought ‘devastated’ covered it. I apologise, I wasn’t trying to be clever,” Wilkinson said.
What went wrong
The retailer had more than £100m in cash at the beginning of 2021, but it was grappling with a number of problems as the pile began to dwindle.
Although the business historically never carried debt, during 2022 it tried to move from an unused revolving credit facility arrangement to a more secured debt position agreement with Australian lender Macquarie, Wilkinson said.
During this negotiation, Wilkinson said, the mini-Budget announced by Truss and then-Chancellor Kwasi Kwarteng caused such severe economic disruption it led to the immediate raising of interest terms far beyond anything the business could deal with.
“We were about to enter into secured lending arrangements with Macquarie when the 2022 mini-Budget happened,” she said. “Literally we were in the midst of that, and at that point the interest terms on that loan were hiked massively and that became unfeasible.”
Revenues fell faster than costs were reduced, and the firm lost the confidence of Lloyds, which had banked the firm for 90 years.
On the brink of tears, Wilkinson told MPs the firm tried to struggle on in vain, but customers deserted it as attempts to grow the business online failed.
“We were helped by suppliers, but not enough to sustain, and couldn’t manage to obtain inward investment to continue to trade,” she said.
Where were the auditors?
In an earlier session, EY and PwC were also singled out for their roles in the company’s eventual collapse.
Atul Shah, professor of accounting and finance at City University, said annual audit reports by PwC and, from 2019, EY showed Wilko had both “passed and failed” the key test, with the directors’ cashflow predictions likely to have erased doubts about whether it remained a going concern.
He said the sale of a Wilko distribution centre in Worksop was used to bat off auditor concerns in 2021/22, adding that EY had waited six months to sign off the group’s accounts until after the sale, allowing the business to be declared a going concern.
No advice given
However, Victoria Venning, partner at EY, said to give advice would have broken accounting rules, and repeatedly pushed back on questions by the committee to that effect.
She defended the finding of a “material uncertainty” surrounding Wilko’s ability to continue as a going concern and insisted the director’s assumptions were strongly challenged by the auditors.
“It’s not our role as auditor to offer advice to a company,” Venning told the panel. “Our role is to assess the status and position of the business and come up with an independent view that the accounts are true and fair.”
She said the firm stood by its 2022 assessment of Wilko’s financial statements, telling MPs it had raised a “serious warning flag” about the fact that the business could run into difficulties.
“There was a plausible scenario where the company could run out of cash,” she said.
Union figures had also accused the owners of bleeding the business dry.
GMB Union national officer Nadine Houghton said the company struggled from a lack of investment and leadership over many years, culminating in a weak response to challenges posed by higher-than-average rents and tough competition from discounters.
Multiple investigations into the collapse are continuing by the Insolvency Service and other bodies, said Kevin Hollinrake, the minister for enterprise, markets and small business.
He said the Pensions Regulator had so far found “no evidence of director misconduct”.
Wilko collapsed in August leaving 12,000 workers facing redundancy.
Earlier on Tuesday, Doug Putman, the owner of HMV told the BBC he wanted to save most of Wilko’s 400 shops but encountered several problems with “super inflexible” landlords that made a deal “literally impossible”.
Putman said that when rescuing a business, it is vital to gain access to their IT system for around four months to allow a transition to a new system, but he felt the charge to do so was exploitative.
“I would say everyone just got a little bit greedy and unfortunately weren’t thinking about the 10,000-plus jobs that would have been saved,” he said.
Putman initially aimed to buy 300 of Wilko’s 400 shops, then 100, before he eventually walked away.
The owner of Poundland has taken over the leases of 71 Wilko stores and rebranded them, with discount chain B&M also taking on more than 50 shops.
CDS Superstores, which owns The Range retailer, bought Wilko’s name and website and is opening five Wilko stores before Christmas.