BHS fiasco could spark a Cadbury moment for takeover rules, says top City law firm

Hayley Kirton
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Cadbury's Worker's Protest Outside Parliament
Like Cadbury, could BHS cause a rethink of the takeover rules? (Source: Getty)

The ongoing BHS debacle could cause the government to have a Cadbury moment and change the Takeover Code, a City law firm has said today.

Pinsent Masons believes that the level of public interest in the high street retailer's administration, and the £1 sale to Retail Acquisitions that took place just one year beforehand, may force a rethink to the takeover rules.

BHS plunged into liquidation today, which will no doubt further the public's interest in its fate.

Such a move would not be without precedent, as the public uproar surrounding the sale of Cadbury to Kraft prompted a rule change to address concerns about so-called broken promises a few years ago.

In particular, Craig Connal QC, an advocate at Pinsent Masons, believes that the BHS pension scheme, which is burdened with a black hole worth £571m, may influence a change to the powers that pension trustees have when a sale of a company is being considered.

Read more: Administrators call time on BHS deal

"The trustees can raise objections as noisily as they wish with the funding employer but they are unlikely to be in a position to do much more," said Connal. "There is no legal basis for them to do so, and as such the only routes open to them would be extreme options such as lobbying, engagement with investors or publicity to force pressure.

"A legislative answer could be found in some form of official clearance focussed on pension funding prior to a transaction proceeding."

The Takeover Code is designed to make sure that all shareholders get as fair a deal as possible when a merger or acquisition occurs. Although the Code was first established in the late 1960s, it was later incorporated into law, thanks to the implementation of a European directive.

Read more: Pensions lifeboat must not be abused

The recent collapse of BHS has triggered two parliamentary inquiries – one from the Work and Pensions committee into aspects relating to the company's pension scheme and one from the Business, Innovation and Skills committee into the sale and acquisition of the retailer.

At an evidence hearing last month, Chris Martin, chair of the BHS Pension Fund Trustees, pointed out to the MPs that trustees had no power to "veto" the decision of the company's sale.

The BHS pension scheme is not the only one that could prompt a rethink of pensions rules. Last month, a four-week consultation was launched to explore potential changes that could be made to help trim down £15bn worth of liabilities in the British Steel pension scheme.

It is hoped that the consultation will help to smooth the way for the sale of Tata Steel.

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