Former BHS owner Dominic Chappell, the majority shareholder of Retail Acquisitions, which bought BHS for £1 last year from Sir Philip Green, is giving evidence on the retailer's collapse this morning.
The business, innovation and skills (BIS) select committee has already heard explosive evidence about the sale of BHS to Retail Acquisitions and its subsequent demise - with Chappell branded a fantasist by former members of the department store's management team. Ex-chief executive Darren Topp also said Chappell threatened to kill him over a £1.5m transaction.
Topp, along with Richard Price, the firm's former boss, and ex-BHS financial adviser Michael Hitchcock, were first up in front of the MPs, followed by Aiden Treacy, Mark Tasker, Eddie Parladorio, and Stephen Bourne, all former directors at Retail Acquisitions Ltd (RAL).
Committee chief Iain Wright MP has warned that Chappell's appearance could go on for a long time.
Dominic Chappell's evidence
"We should have spent more time dealing with the pension prior to the acquisition," Chappell said. He apologised for workers who have lost jobs and whose pensions are at risk, when prompted by the committee
He said company was held to ransom by pensions regulators and Philip Green, and said Green would not allow RAL to meet with the watchdog when hammering out the acquisition. He added that BHS should have been separated from Arcadia when dealing with the pensions regulator.
Chappell said it was "nonsense" that the pensions regulator learned of sale of BHS to RAL from press reports, but added he did not inform the watchdog about the deal.
"Looking at the whole picture" he believed that the pensions issue could be addressed. Green had agreed to pay half the current pension requirement for three years.
He said if the company had been allowed to "park the pensions issue" they could have come up with the cash to save the firm. Ultimately, though, RAL couldn't be released from the "moral hazard" of the pension liability, and BHS became a "ping pong ball" between Green and the pensions regulators.
ON THE COLLAPSE
He admitted to being "part of the downfall of BHS" and said its collapse was avoidable.
He added that he was in the US for an eye operation, then in the Bahamas for meetings at the time BHS was going into administration.
ON BHS SWEDEN
£1.5m was moved to BHS Sweden to make payments to advisers, law firms, and insurers. He then replaced the money because Topp gave assurances the money would be used for the turnaround plan.
BHS Sweden was set up to chase opportunities in the Nordic region, he added. BHS was the beneficiary of the funds of BHS Sweden, Chappell says.
ON THOSE SHIFTING FUNDS
Chappell said a loan was made by Retail Acquisitions towards his father's house, from funds "earned from BHS and other business". The loan was approved by the RAL board - voted on by Chappell and one other board member.
Jeremy Quin MP asked whether Chappell should have abstained in the vote - he responded "maybe", but deemed it a "sideshow". Quin said it was not a sideshow as it "goes right to the heart of how the company was being run".
Chappell also took out a personal loan of £150,000 due to a "cash pinch" caused by tax bill.
Richard Fuller MP asked why money from property sales was put into Retail Acquisitions and not BHS - Chappell said it was because BHS was a completely separate entity, the money went to cover RAL's fees and the rest went to BHS.
He wouldn't say how much he personally made from BHS but admitted he made a profit from the business, which he felt he deserves because of all the work he did within the company.
ON DAY TO DAY RUNNING OF THE BUSINESS
He said Darren Topp was not involved with the "complex problems" of running BHS, but kept trying to get involved. He appointed headhunters to replace Topp, but when Topp found out it caused "discord".
Chappell admitted BHS could have been run better if the acquisition had not been so rushed.
There was no investment in BHS stores when he arrived: "There were stores that had no heating. Staff had to come in and paint stores at the weekend."
He said he was devastated about the 11,000 workers whose jobs are at stake.
"We knew nothing about retail," he said, adding that he "bought into the turnaround plan" put forward by the management, and Green expressed no concerns about the lack of experience.
Chappell said he and his team believed they could have worked to save the business with the help of Arcadia, which owed them a "duty of care".
ON GREEN'S INVOLVEMENT IN BHS
Philip Green would not allow BHS to be bought by Sports Direct owner Mike Ashley, which ultimately led to the retailers collapse, Chappell claimed - adding that Green went "insane" when Ashley's name was put forward. Ashley was willing to save the company but was railroaded by Green, he claimed.
Chappell had "endless discussions" with Green on the pensions situation, "and it was like lighting the red touch paper, he went from zero to incredibly angry", he lost his temper because it was out of his control, Chappel claims.
The initial, £1, deal was hurried through because the equity firm that bought Topshop was putting pressure on Green to concentrate more on that part of the business, and "the energy and resources to turn around BHS was not within his grasp".
Green has a "slight control issue" - he wanted to be the only one to deal with the problem of BHS, therefore had to be involved in disposing of the business. "Arcadia and Philip Green are one and the same. Arcadia does what Philip Green wants," he said.
He did not want to buy Arcadia, but did discuss purchasing other Arcadia brands, including Austin Reed.
Green would have liquidated the company if Chappell hadn't bought it.
Finally, Chappell said his lawyers are examining the possibility of launching a case against Sir Philip Green.
“I think Philip thought we would genuinely fail. I believe firmly that he was very hostile about us doing the property CVA," he added.
How the £1 deal came about
Chappell was introduced to the BHS deal by a Paul Sutton in 2014 - he didn't know Green before then, he tells MPs.
He met Sutton in 2007, when Sutton expressed interest in a property deal on the Isle of Wight, which "came to nothing". He then met him again in 2013 when they worked on a business plan for Snoozebox. Following that, Sutton introduced Chappell to Project Albion - the BHS deal.
Sutton provided Chappell with a "pretty comprehensive data bank" about BHS. Chappell says he didn't know where the information came from, and he didn't ask.
Chappell and Sutton spent two months going through the data to see whether they could help the company turn around. At that point, it was "Sutton's deal".
It wasn't until late 2014 or early 2015 that Chappell met Green, he says.
Chappell was subsequently informed that Sutton had nothing to do with BHS - he believes a number of people were being "hoodwinked" by Sutton to the effect that Sutton was a "big time property player". Sutton claimed to have a close relationship with Green, but now Chappell believes that they only met once or twice.
Green chose Duff & Phelps to act as administrators to BHS because he had a relationship with them. Chappell says he does not think it was appropriate to do so: "We could have saved BHS."
Chappell says Darren Topp tried to "wiggle his way" into the ownership of the business. Says Topp and his management team were "off forecast", and funding had to be accelerated into the business.
Chappell says Green refers to the administrators as his "ponies", and they do as he directs.
Chappell brought in property expertise, when he joined the firm, he says, as well as associates with takeover experience. He had a "significant team" behind him and brought a "fresh pair of eyes to the business", which Green could not bring.
Sutton told Chappell he would need to show Goldman Sachs - described as the "gate-keeper" to BHS - that he had a team put together to carry out the BHS deal, and also to get a merchant bank on board - River Rock joined the bid.
However, Chappell says they weren't given enough time to go over the due diligence.
At that time, Chappell believed they would be buying BHS debt-free and pension-free. Green then informed Chappell that there were issues with the pension.
Chappell and his team subsequently met with Deloitte, who said there was a £50m pension plan agreed with the pensions regulator. The maximum needed to cover the pension plan would be £75m, they were told.
Chappell on the funding
Chappell confirms that he paid part of the equity for BHS using a loan which he then repaid with BHS money. He also says the Tina Green paid £3.5m into BHS, but doesn't know whether that was from her personal account or from one of her companies.
The committee has questioned why Chappell paid £6m back for a £5m loan over two months - Chappell contends there were other fees and payments tied up in the repayment, denies it was a £1m interest payment.
Chappell says when he took over the business they immediately saved £4m per year on head office rents.
The cash balance when Chappell bought the business was at £94m, it finished up at £25m - "That's not ideal," says Chappell.
"Everything you have just told me you should have known if you had done appropriate due diligence," says Jeremy Quin MP.
Chappell contends he did do proper due diligence, and a report they received from Grant Thornton "went into every aspect" of the business.
Chappell says he picked up a "very wounded portfolio" of stores when he bought BHS, and there had been very little investment into stores in recent years. It was "very difficult" to get to the bottom of what was happening with the business, he says.
Chappell says he learned that Green sold a property to his stepson just days before the deal completed from the Times, and was "shocked" to learn of the transaction.
Retail Acquisitions evidence
Bourne says Sir Philip Green suggested to Dominic Chappell that he could by BHS. Chappell in turn told Bourne the deal involved £250m of property.
RAL wasn't a business, says Bourne, it was a vehicle to effect the deal between Chappell and Green. "There was no entity, there were no executives," he says.
So there were no board meetings to enquire about due diligence, Iain Wright asks? Bourne says there was a lot of "real-time work" going on.
The purpose of the RAL directors was to be managers of the subsidiary group and "to a great extent" the work we were doing was at a BHS level, Treacy says. They would attend weekly meetings with the management of BHS.
Bourne says the funding of the transaction changed throughout, and two emails in March 2015 referred to payments. One said a transfer was coming from law firm Olswang, the other said money was coming from Arcadia due to the sale of Marylebone House. The second transfer was to cover the fees of the deal, Bourne says.
The original intention was for RAL To buy Marylebone House, and then sell it on to Ace, owned by the Dellals. However, Sir Philip Green then changed his mind, and it was sold to another, unknown party. Ace had been willing to pay £40m for the property but it is unknown what the eventual sale price was.
Treacy says Green said he would give RAL £8.5m in compensation because of the interrupted deal. The £8.5m did not turn up - the company instead received funds from another sale of an asset, which was supposed to go to BHS, not RAL.
Richard Fuller MP asks why the transaction was carried out this way. Bourne says he "wasn't involved in any bank accounts".
Parladorio, the only former director who was working at RAL when the deal closed in March 2015, says that when £8.5m did not come in there was an agreement that it would eventually arrive - which it did, months later.
Bourne says Chappell was working very hard to acheive "what we thought was a friendly transaction".
When asked why all the directors "jumped ship" around the same time, Bourne says he left because he either did not know the people who would be working at BHS or he thought they they were inappropriate appointments, and therefore said he would come off the board of RAL at completion of the deal.
There were some experienced project managers but the experience they had did not warrant a place on the board, Bourne says.
At the end of the day, Bourne says, the only thing that mattered was whether Chappell would be able to finance the deal.
Committee chief Wright says he may call the directors back to give further evidence.
Sir Philip Green made it clear on selling the business that the solution to the pension problem fell to both BHS and Arcadia.
Hitchcock says there were so many advisers dealing with the pension deficit "it was like a tea party". "You cannot find a solution by committee, you need a small team that comes up with a solution," he says. "It was like a Mexican standoff, everyone was dancing around the handbags."
Green was aware that Topp and his team were looking for a plan to deal with the deficit - named Project Vera - but it was rejected by the The Pensions Regulator, and the Pensions Protection Fund.
The PPR asked "very credible questions", Hitchcock says, but he says there were a number of solutions that would have kept the pension out of the PPF.
He says the PPF is "not fit for the current commercial world" and is not "acting in the interests of pensioners".
Arcadia "always knew they were part of the solution" says Hitchcock.
Michael Hitchcock, financial adviser to BHS, says Chappell is a "Premier League liar and a Sunday league retailer, at best".
Hitchcock says Topp was spending "90 per cent of his time trying to govern what was going on above him" and says the situation was "completely extraordinary".
"I'm sat here with the benefit of hindsight... that the motives of Dominic Chappell and [Retail Acquisitions] were not what they should have been," he says.
Hitchcock says he applied his 'smell test': "It just did not smell right."
"If someone stands up in front of you and says I'll put £10m into this business and says they'll hire a property expert... if you don't deliver on that, you're a liar," he says.
Retail Acquisitions took £17m out of the business, then put £10m back, says Hitchcock.
When asked about £1.5m moved out of BHS into a company called BHS Sweden, Chappell threatened Topp, saying "If you kick off about this, I'm going to come down there and kill you". Topp "knew he had a gun", and told Chappell not to threaten him again.
Topp says he considered calling the police over the movement of funds, as it was "theft". "This was salaries for people, not earning hundreds of thousands a year, people on £7 an hour. It was disgusting," Topp says.
The day that the administration was announced, Chappell was on his boat in the Bahamas, having previously said he was going to be "having an eye operation in the US".
Sale to Retail Acquisitions
The sale of BHS was made for £32m. Then £25m went to BHS, with £7m going straight back to Retail Acquisitions, deemed an inter-company loan, the company hears.
One of the key pillars of BHS' turnaround plan was dealing with store landlords. Hitchcock says a proposal of a CVA was made before Christmas 2015 but "for some reason this was ignored" by Retail Acquisitions. Chappell was instead focused on Project Herald, a plan to move the retailer's profitable operations to benefit Retail Acquisitions.
"When I came into the business, that business was ripe for turnaround," says Hitchcock.
Hitchcock says the people Chappell surrounded himself with were "not fit for purpose". Chappell's advisers on the project were from Grant Thornton.
"I fundamentally don't think he understood what was going on. I question his intelligence," Hitchcock states.
"The balance sheet that was left for Dominic was stacked for value," says Hitchcock, adding that Chappell needed to leverage the property assets correctly, which could have saved BHS.
"Dominic didn't want BHS to fail," says Hitchcock, but the "motives just weren't right" regardless.
It was "blatantly obvious" that Chappell lacked retail experience, Topp says. Although Chappell promised to hire a retail "heavy-hitter", this was never done.
Chappell told Topp he was a ‘turnaround expert’: "He said he had turned around an oil company.
"I took it at face value. I’ve subsequently read in the press that perhaps it’s not true."
Topp says it became clear that, rather than Chappell putting his own money into the company as he said he was doing: "He had his fingers in the till."
Topp says Chappell's disclosure that he was a bankrupt made it seem like he had nothing to hide. He also says the BHS management had Googled Chappell and got "an idea of [his] colourful past".
For the year that Retail Acquisitions owned the firm, BHS' sales were broadly flat while M&S suffered a more than two per cent drop, Topp says. However, BHS did not "have a balance sheet like M&S that could cope with difficult trading".
And, he adds: "There is no doubt that my attention was diverted elsewhere which didn't help."
Hitchcock says that because Topp was spending so much time trying to govern what was happening with the ownership it is no wonder the turnaround plan went awry. "Darren is a very good retailer," he states.
Before the sale
Asked about Sir Philip Green's involvement with the company prior to its sale, Price says he had a "passion for product" and was "quite heavily involved" in BHS, attending multiple weekly meetings with management.
Price was first made aware of Green's intention to sell in January 2015. Green got the board together and announced he had an interested party, who would make investment in the business and "would be able to do things that Arcadia group couldn't". "There was lots of positivity," he says. "Essentially it was sold as a form of management buyout."
At that stage, Price says, Green did not give a lot of detail about the sale, but said due diligence had been done.
At the time, the lack of Chappell's retail experience was acknowledged, Price says, but it was sold on the premise that the new owners had property and turnaround experience.
Sir Philip Green
Green did not introduce Chappell to the BHS management, Topp says. That happened in February 2015, when the firm was trying to decide on a turnaround strategy.
Previous owner Sir Philip Green was informed about Topp's concerns around Chappell when the company embarked on its CVA in an attempt to turn its finances around.
Arcadia continued to prove a "significant number of services" for BHS even after the department store was sold - those services included payroll, and the store's digital platform.
Arcadia also provided short-term loans when "cash was tight".
BHS went into administration in April, sparking an inquiry from the work and pensions committee as well as the BIS committee concerning the events leading to the collapse, and the firm's £571m pension deficit. At the beginning of June, the company went into liquidation when a rescue deal could not be found.
MPs were told in an earlier session of the BIS committee's inquiry that Retail Acquisitions may not have been fully aware of the pension scheme position when it embarked on its acquisition of BHS. Chris Martin, chair of the BHS Pension Fund Trustees, said the group "clearly [had] some uncertainty around the pension issues" ahead of the deal.