Err, Frank, which part of limited liability don’t you understand?

The chairman of a UK parliamentary committee probing the collapse of BHS has said it “would laugh” if Sir Philip Green were to offer less than £600m to settle the former retail chain’s pension debts.

You might be able to catch him for summat but nowhere near that much.

31 thoughts on “Err, Frank, which part of limited liability don’t you understand?”

  1. These committees are built from Alice in Wonderland.
    I thought F F would be able to keep the dogs on the leash, but obviously not when you have Jewish and Monaco in the mix.

  2. So Much For Subtlety

    Edward Lud – “It’s a routine, state shake-down. Limited liability is neither here nor there.”

    It looks a lot like Green looted his company’s pension fund, moving all the assets into his own accounts, and then dumped the liabilities on the rest of us as tax payers.

    This is not a routine situation. Normally people would not loot pension funds. Robert Maxwell did of course. Since then public outrage has led to the State assuming the liability. That means the State has to pay. Given the State also grants the limited liability, I would assume the State is re-thinking what limited liability means.

  3. So Much For Subtlety

    bloke in france – “I thought F F would be able to keep the dogs on the leash, but obviously not when you have Jewish and Monaco in the mix.”

    I think the temptation to play the anti-semitic card is one that should be strongly resisted. I am sure that there are people who don’t like Jews making the most of this. But Robert Maxwell was also Jewish. He definitely looted the pension funds of his company. I am sure some people did not like him because he was Jewish. But I am more sure a lot more people did not like him because he was a crook.

    In the end Maxwell did something bad. Whether or not the criticism was motivated by anti-semitism or not he stole the pensions of his workers. Green did actually pay himself something like £600 million from BHS and left the company all but bankrupt with unfunded pension liabilities of, surprise!, about £600 million. Whether or not Green is Jewish that kind of remains a fact.

    And it is very difficult to explain in a normal way without running into British libel law.

  4. Can someone explain what’s happened? Like, did Green take money out, or is it just short? Who was a trustee of the fund?

    Sorry, I don’t trust most of the press to be bullshitters.

  5. Yeah I’ve not seen a proper explanation yet – the media failing again. I guess it rests on the actuarial calculations of the pension fund, and whether they were unreasonably aggressive when big Phil was taking out the dividends.

    i think there was also a bit of sale and leaseback between bhs and other entities linked to the owners just before the sale, which might have a bearing

  6. As I read it somewhere the deficit became massive as interest rates dropped significantly at the time of the financial crash, leaving them unable to get enough income, particularly as they (BHS) have a lot of defined benefit pensioners. Thus the deficit is a direct consequence of State monetary policy, not the owner(s) of the business stealing cash from the pension fund.

    There’s a good graphic (I know its the Guardian but hey) that shows the fund was in surplus as recently as 2008. The Financial Crash is whats done for it.

    https://www.theguardian.com/business/nils-pratley-on-finance/2016/apr/25/sir-philip-green-must-do-more-to-sort-out-the-bhs-pension-mess

  7. So Much For Subtlety

    Jim – “Thus the deficit is a direct consequence of State monetary policy, not the owner(s) of the business stealing cash from the pension fund.”

    You don’t think that economic downturns are a normal part of the economic cycle and that sensible businesses ought to plan and prepare for them?

    I think it is interesting that Green seems to have sold BHS to Arthur Daley. Why not Blackrock or a hedge fund? What is Mitt Romney doing these days? The logical answer seems to be the Big Boys knew how to read a balance sheet and had a pretty good idea of what the BHS pension liabilities were. It looks like Green found some used car salesman who did not.

    So the question is what did Green know and when did he know it. It did not take the new owners long to find out that they had a massive deficit.

  8. So what was the obligation on BHS to support the pension fund when it started going red?

    My previous employer has paid a metric shitload of money into its pension fund over the years to cover actuarial deficits when the investment climate turned sour. It may have been out of the goodness of its corporate heart, but I suspect they had more of a legal obligation.

  9. So Much For Subtlety

    Rob – “Why would an asset management company buy BHS? What do they do with it?”

    Mitt Romney, along with many other people in the world of private equity, made a fortune buying badly run companies, turning them around, and selling them for a profit. The number of publicly listed companies in the US is actually dropping I am told.

    Why wouldn’t someone buy BHS? If, that is, there was money to be made. Green sold it for a pound. That means everyone else did the sums and worked out it was worth less than that.

    Off Topic: In a mark of the decline of the Telegraph as a newspaper, it is reminding us that today is International Gin Day:

    http://www.telegraph.co.uk/news/2016/06/11/world-gin-day-8-excellent-reasons-to-celebrate-it-in-style/

    In the news section no less. Ignoring their idiocies, there is still time to celebrate. Although who the hell would buy Hester Blumenthal’s Hipster gin?

  10. SMFS,

    Oh, please make hipster gin stop. It’s quite clearly emperor’s new clothes crap, or they wouldn’t spend so much money on making fancy bottles and labels.

    I met tequila snobs recently, which I found hilarious. Tequila is just a nasty drink that you do for shits and giggles. It’s not Chablis.

  11. “In a mark of the decline of the Telegraph as a newspaper, it is reminding us that today is International Gin Day”

    That’s not the real mark — the real mark of the Telegraph’s decline is the recent hiring of Radhika Sanghani, who is pumping out a factory line of whining feminist articles to keep narcissistic middle class female readers on board.

  12. The Telegraph just published a propaganda letter from that piece of CCP shit who is the Chinese ambassador to the UK. I wonder how much they were paid for that?

  13. “which part of limited liability don’t you understand?”

    Depends on what he actually got up to. Limited liabilty is no defence against fraud and embezzelment.

  14. So Much For Subtlety

    The Stigler – “Oh, please make hipster gin stop. …. I met tequila snobs recently, which I found hilarious. Tequila is just a nasty drink that you do for shits and giggles. It’s not Chablis.”

    The writing was on the wall when people got snobbish about vodka. They are basically all the same – industrial quality alcohol designed to make you as drunk quickly for as little money as possible – with a tiny bit off added taste to put off throwing up as long as possible.

    I don’t begrudge Hipsters their fun. But I don’t understand it at all.

    Tel – “That’s not the real mark — the real mark of the Telegraph’s decline is the recent hiring of Radhika Sanghani, who is pumping out a factory line of whining feminist articles to keep narcissistic middle class female readers on board.”

    I have to concede that. No media seems immune to the call of the Empowered Woman and their narcissism. I don’t get it because pandering to this sh!t is not going to help them. Men don’t want to read it – men are likely to actively avoid it – and it is not good for the women who do read it. The Telegraph should unashamedly and openly stick to a sensible policy for female readers – Kinder, Küche, Kirche would be a good start. I expect that their reader numbers would climb. Social Justice is a plague that kills all it touches.

  15. The issue with Mr Field like most MPs is that he has reached a conclusion without hearing the evidence. Innocent until proven guilty used to be a standard of British justice

  16. Bloke in North Dorset

    Isn’t Limited Liability for shareholders? AIUI whatever Philip Green is accused of it was as a Director and therefore not protected.

  17. SMFS,

    “The writing was on the wall when people got snobbish about vodka. They are basically all the same – industrial quality alcohol designed to make you as drunk quickly for as little money as possible – with a tiny bit off added taste to put off throwing up as long as possible.”

    The noticeable thing is how much money goes into branding: unusual bottles, logos, marketing. This doesn’t happen with malt whisky, fine wine or cognac. And that’s because the premium stuff is different. OK, some people might think XO cognac isn’t worth the extra, but it is better.

  18. Yes the pension fund was stated as being in surplus not too long ago, and yes the real world scenario that played out in terms of yields, longevity, capital gains and so on is what drove the move to an underfunded status.

    But the question is whether the stated surplus was based on reasonable assumptions or not. These calculations are driven by assumptions decades into the future, and small changes can produce hugely different outcomes. It is easy to pretend a weak plan is funded if you can play with the numbers a bit.

    If they were reasonable at the stage Green sold the firm, (and as long as there were no other shenanigans) then he has little case to answer.

    My suspicion is that games were being played, simply because the consequences for BHS of the last few years of pension outcomes seem such an outlier in terms of consequences. But possibly it was just on such a knife edge.

    But again there is little/no explanation of this in the media.

  19. As far as I know, Green (in fact, his wife) took the dividends before 2008, and there has been no recent pay out.

  20. Funny bottles does happen with up-market Cognac, to a degree (not the really good stuff). But I agree about Scotch and fine wines.

    Back on topic – I don’t think the comparison with Maxwell holds. Maxwell took money from the Mirror pension fund to prop up his other failing enterprises – when they folded, so did the pensions. I’ve seen no evidence that Green has done anything of the sort, and if he had, the trustees should also be in a heap of trouble.

  21. Arguably the owners should have stumped up to support the pensions fund. But that’s Ltd Co for you: they can say NO.

    The pension palaver may be what first responders call a screamer. Noise disguises the urgent cases, which need more prompt lifesaving.

  22. “You don’t think that economic downturns are a normal part of the economic cycle and that sensible businesses ought to plan and prepare for them?”

    The whole point of the financial crash was that it was (in the public sphere at least) entirely unpredicted, indeed not even considered possible. The idea in 2007 that inside 18 months interest rates would be at 0.5% and stay there for the best part of a decade (and counting) would have had any pension analyst who proposed it put in a rubber room. It was entirely out of the realm of what was considered possible in the short to medium term.

    Even prudent predictions of lower interest rates (2-3% say) would have been proved massively over optimistic. And of course once the crash hit, and the recession arrived, retail as a business is in the doldrums, and BHS was a weak member of that sector anyway, so would be in no position to be making profits to make up the shortfall in the pension fund.

    BHS is fundamentally a victim of three outside forces – the Great Recession reducing its profitability, the near decade long low interest rate policy reducing pension returns, and the internet decimating the High Street retail environment.

  23. “the question is what did Green know and when did he know it.” Up to a point: my interest is to what extent the wide boy and the spiv acted in collusion over the purchase of BHS. For instance, did the wide boy (or his moll, or his moll’s companies) bung the spiv some dosh so that he could carry off the takeover?

  24. …my interest is to what extent the wide boy and the spiv acted in collusion…
    Why does it matter. If, rather than selling BHS for one pound, Green had simply said ‘Oops, this operation is no longer economic’ and shut it down, what difference would that make to the former employees and pensioners. If he sold it for one pound, and loaned the funds (and even more) to the buyer to finance the purchase and initial operation, what difference would that make?
    I think the only relevant question is whether he (or the Board) removed funds from the company knowing that the pension fund was seriously underfunded. Other than that, nothing matters – wide boy, spiv, or not.

  25. dcardno is quite right.
    We might also consider the moral hazard created by the PPF, when New Labour decided the government had a duty to protect pensioners by levying a charge on all those other pension funds that were still solvent. A big discouragement to sober capitalists who saw that the money they put into the fund to provide pensionms for their workers could be filched to pay pensions for their rivals’ workers. That is *really* how to encourage people to fully fund their pension scheme isn’t it?

  26. I wonder what the state of the pension fund would have been if they had been able to reclaim dividend tax credits?

    That was Brown, not Green.

  27. So has he taken any major money out in last 8 years?
    Is this a case of F F chasing him for his wife’s money?

  28. @ Andrew C
    Less bad, of course. there are two parts to this – one is the simple confiscation of the tax credit and the other is the greater weighting to fixed interest (where they didn’t lose thge tax credit) and the consequential greater weighting to gilts in the pension fund portfolios (because corporate fixed interest is relatively small) meaning that Brown could borrow more money at low interest rates.

    Both mean that Brown was stealing money from your pension to pay for his political pets (such as a £5bn contract for an unwanted ship to a local dockyard that will benefit workers in his constituency).

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