The witnesses providing evidence to the committees today were Alex Dellal of Allied Commercial Exporters Limited (ACE): Neville Khan, managing director of the financial advisory arm of Deloitte; and Paul Sutton.
In session one Alex Dellal provided evidence to the Committees. Mr Dellal told the Committees that he first met Dominic Chappell on 6 November 2014 and was given the impression that Dominic Chappell was trying to get everything in order for something that seemed to be time-sensitive. He confirmed that ACE knew about his previous bankruptcy but had all the correct documents they needed for the properties they were discussing and he was well-versed and in contact with the correct people. Asked why he did not question the rush, he told the Committees that it was very typical of an off-market position and ACE is usually a last contact for that kind of route. Asked if he met or knew of Paul Sutton he said no.
Initially, Chappell wanted to borrow £20 million against various properties. ACE made it clear that it was not interested in any money at that point but was very focused on acquiring a property in Marylebone.
On 4 February 2015, ACE paid a deposit for the purchase of Marylebone House into an escrow account held by Olswang. Dominic Chappell was essentially an intermediary. Dellal confirmed it took about three months to get comfortable about the properties and, during those months, the deal changed significantly as ACE had initially wanted to buy Marylebone House but, at the last moment, that came off the table.
ACE was then asked by Dominic Chappell if it would be interested in North West House and it said yes. It had no time to carry out any specific due diligence on North West House and relied very much on what it had carried out on Marylebone House.
Mr Dellal confirmed that the £35 million sitting in Olswang’s escrow account was for the purchase of Marylebone House and contingent on Dominic Chappell buying BHS. When asked if, from his point of view, it would be appropriate for Dominic Chappell to have represented this as a sign of his veracity as a buyer, he said that, if it had, it was totally wrong because the monies were intended solely for the purchase of Marylebone House and thereafter North West House.
It transpired that this money sat in escrow for around five weeks and ACE received £1 million for doing this as it represented an opportunity cost of having this money sitting there for so long. It transpires that £35 million was pretty much the bulk of ACE’s working capital and those monies in escrow put the company into a stagnant position.
Asked what the value of North West House was to ACE, he confirmed that ACE has sold it and made £6 million profit. The purchase price was £32 million, so it made approximately a 20% return.
Asked more about the original due diligence on Marylebone House, he confirmed that the value ACE came up with was £45 million. It was a buy and hold proposition not for resale. He confirmed that all access to Marylebone House in order to carry out the survey etc was through Retail Acquisitions and they never met Sir Phillip Green or Arcadia
On 10 March 2015, ACE made a further £5 million loan as Dominic Chappell and Retail Acquisitions said they needed another £5 million to push forward the transaction of selling North West House. It was secured against Atherstone and conditional on the purchase of BHS. ACE made £1 million on this loan as a fixed fee. Dellal confirmed to the Committees that he was not aware what Dominic Chappell was using the £5 million for.
In June 2015, ACE made a further loan of £25 million. Dominic Chappell had said that they were having cash flow difficulties and new ownership teething problems. He needed a bridge loan for rents and salaries. ACE took a risk as it would be on the hook for the Oxford Street store rent if Dominic Chappell defaulted. It took security over the Oxford Street lease and the Manchester property. Even though this was essentially a third loan, Dellal thought that Dominic Chappell was on track to turn it around.
Finally, Dellal was asked about the unsecured personal loan of £150,000 made to Dominic Chappell in February 2016. He told the Committees that this was a two-week loan to deal with a tax bill and cash flow. Although knowing that Dominic Chappell was a previous bankrupt, he felt that, as owner of BHS, he was a successful businessman and seemed to be in a position to pay him back. The interest was 1% per month. Dominic Chappell has paid back £75,000 and the remainder is now in the hands of lawyers.
The second session was with Paul Sutton who told the Committees that he was first introduced to Sir Philip Green at the end of 2013/beginning of 2014 by Robin Saunders. He said his children knew Sir Philip’s children from Monaco and he had met Lady Green only once following that first introduction to Sir Philip. Despite saying this, it then transpired that they were, in fact, neighbours in the same building in Monaco up to 2005. Straightaway, the Committees were given mixed messages.
Sutton said that he met Robin Saunders after taking over two-thirds of her office space in Grosvenor Street, London. She was apparently looking to raise money for a company that his friend had called ITS. Robin Saunders apparently mentioned BHS to him and then set up a meeting with Sir Philip. He said that his meeting was quite general and Sir Philip effectively said that he was quite interested in doing something. Did Sutton know anyone or could he facilitate it? Amanda Milling pointed out to Sutton that the timing seemed strange because Robin Saunders had said that no contact with Sutton took place after June 2013. Although this point was parked by the Committees, it was not revisited later in the session.
Sutton said that Robin Saunders was not involved after the first meeting. He then said that Sir Philip told him that there were two problems with BHS - the pension fund and the losses - but he was committed to BHS and, from Sutton’s perspective, Sir Philip was emotionally attached to it. He said that Sir Philip was going to deal with the pensions separately and that he always thought that Sir Philip was obliged to pay the pensions debt. From Sutton’s perspective, there was no plan to offload it onto the PPF.
He confirmed to the Committees that he would have bought BHS without a pensions deficit and it was made explicit to Sir Philip that the entire deficit had to be cleared. He also confirmed that he and his team had no discussions at all with the Pension Scheme Trustees or the Pensions Regulator because of the assurances that Sir Philip had given. He said that Dominic Chappell would not have known any great detail on the pensions as he had not been present at the meetings with Sir Philip but he might have known something through conversations back at the office.
Sutton was questioned about a letter that had been sent to the Committees by LEK, advisers to Sutton, relating to conversations that Sutton had outlined to them regarding Sir Philip’s reasons for selling BHS. LEK had been appointed to bring in a top class retailer to do the business turnaround. LEK said that they were told that Sir Philip wanted to focus on Topshop/Topman which represented his international ambitions. The Green family apparently believed that, by being separated from BHS and trading under new management for a few years, they would be absolved from any responsibility for future failure and associated reputational damage. Further, the Green family would not sell to a retail rival as this would also have reputational damage if a rival succeeded. Sutton denied saying any of this.
After his meeting with Sir Philip, Sutton said that he dealt with Paul Budge and Gillian Hague and only spoke to Sir Philip a couple of times. Budge and Hague gave Sutton the BHS data.
Sutton’s team of advisers comprised Deloitte, Mishcon de Reya, Eddie Parladorio, LEK and, latterly, Dominic Chappell. It transpires that neither Mishcon nor Deloitte were paid as it was all speculative. He said he had known Eddie Parladorio for around ten years in a professional capacity but admitted that Parladorio did not have any corporate law skills.
He said that he thought Sir Philip was speaking with him (Sutton) because he had just floated a public company which had won Public Company of the Year. Sutton maintained that, if his proposed purchase of BHS had not been stopped, BHS would now be part of a much larger company. Asked if he was therefore saying that, if he had continued with it, he would have realised a position that was rather better than Mr Chappell’s, Sutton replied: ‘With respect, that wouldn’t be difficult, would it?’.
When questioned more about Dominic Chappell’s involvement, Sutton said that he had effectively lost £160,000 in Chappell’s Island Harbour project when it went bust. Ten years later, he said he got a call from a lady called Natalie Tarrant, saying that Chappell had emailed her asking for Sutton’s phone number. They then spoke and Chappell said that he was on his uppers and asked to meet him. They met in London and from there Sutton got him involved in an international container business deal called Containia.
From Sutton’s description of Chappell’s role, Chappell appears to have been Sutton’s lackey and chauffeur as Sutton was banned from driving. He said that Chappell would wait for him at Mishcon’s offices, outside BHS, etc, but gradually started to get more involved. He was asked if he (Sutton) was some kind of latter day Joan of Arc!
Sutton said that he was thinking about suing Chappell regarding the £160,000. This seemed rather odd bearing in mind there was allegedly a ten-year gap and contact was only sparked after Natalie Tarrant’s phone call. Nevertheless, Sutton said that he spoke with Chappell because he wanted his money back. It seems that getting him involved as his lackey was a form of payback.
It transpired that the Containia work would have only taken up about one day a week of Chappell’s time and so, because of this, he started to gradually get involved in BHS by making things work between people and introducing contacts. Sutton said that, at that time, he never expected Chappell to go and do what he did. He said that Chappell was not a big part of Sutton’s team involved in BHS – ‘he was one small cog in a wheel’. He said it was only after the wheel fell off following the blackmail from the Tarrant family that he had to step out of this when the dossier was delivered to Sir Philip.
After stepping down, Sutton had to sign a non-disclosure agreement, but this was only actually signed in February 2015. The Committees took him back to the meeting that had been arranged with Paul Budge when he had to stand down. Paul Budge said that this could not go ahead due to the dossier. Sutton said he asked to see it but was told it was too late because it had gone to the company. Sutton told the Committees about being blackmailed and said that the police were well aware of it. There was an article saying that he had been found guilty and extradited to France which he said was not true. He said the Committees had seen this proof and that a total of four blackmail allegations have been made to the police.
Sutton was asked what made it necessary, in his view, to certify his non-involvement with BHS. He said that this was requested by Sir Philip. However, why would he be motivated to sign it after dumped from the deal? He said it was his fault and why should Sir Philip suffer because he was being blackmailed.
Sutton was then asked whether or not it was true that he and Chappell jointly established a company in Panama. He confirmed that this was true and the company was incorporated in July 2015. He said that the company he had been working on before he had been able to proceed with BHS was interested in buying BHS from Chappell and for this he was entitled to a commission. Chappell or the Retail Acquisition’s board agreed this and the Panamanian company was then set up to receive it. Chappell had told the Committees that Sutton owes him £800,000 but Sutton said that Chappell is a liar.
Through further questioning it transpired that Sutton gave Chappell shares in the Containia business despite doubting his credibility. He said at the time that he did not need to trust Chappell because he was not important in what he (Sutton) was doing. But the Committees said that he was more than just a driver, he was a co-ordinator and a shareholder. Sutton said that the shareholding was given to him because he did not want to pay him and acting as a co-ordinator does not take ‘the cleverest fella on the planet’.
In a further turn of events, some months later after being dumped, he was then asked by Chappell to visit River Rock to have a look at he deal that he had worked up. The Committees thought this odd and asked Sutton why he attended. He said that he did not see why not to as he had worked hard on it and, if it could go somewhere, let it go. He said he did it out of kindness.
The final session of the day was with Neville Khan of Deloitte. He told the Committees that he first came across Sir Philip Green in 1992 when he was working on an administration and Sir Philip was interested in buying some stock. He had no direct interaction with him but he did in 1996 while he was administrator of a company which was acquired by a company controlled by Sir Philip. All his interactions had been predominantly through retail insolvencies or distress situations. He became involved with BHS and Sir Philip in November 2013.
Neville Khan was asked what were the similarities and/or differences that he saw between BHS and other failed high street retailers. He said that, over the years, he had seen many operating models in which retailers had not kept up with the times and had often been saddled with a lot of fixed costs and property costs that were quite often difficult to negotiate. He confirmed that BHS was not getting enough margin through sales to support its prospects.
When asked about Paul Sutton, Khan he said that he came across him in 2014 when Sutton met with Traveta about BHS. Deloitte had been asked to attend as it had been engaged to do some BHS work on the pension project, Project Thor, and asked to attend to answer questions about it. He met Sutton several times, along with his colleague Lee Manning. Sutton attended all these meetings on his own. Khan wanted to impress upon the Committees that, at all times, Deloitte made it clear to Sutton that it was acting for Traveta and not for him. This is why it was not paid fees by Sutton.
Although Neville Khan was the main client partner at Deloitte is appears that it was Tony Clare (already interviewed by the Committees) who dealt with Project Thor. However, the Committees were keen to know his view on it. What did he think was the major sticking point between the trustees (represented by KPMG) and Arcadia (represented by Deloitte)?
Khan said that there were not any sticking points because of the agreed heads of terms with the trustees. However, he did acknowledge that there was a significant disparity between the estimate outcome statement but said this was because it was an estimate of insolvency recovery at a particular point in time. The figures were based on a judgement of the realisable value of assets and liabilities. Asked about the difference in analysis, he said he could not answer this and that he would need to check the correspondence but, over time, the advisers did get closer.
Richard Graham pointed out that Deloitte, upon realising that some of the estimates were incorrect, did take some action. Neville Khan said he did not know what he was referring to. Richard Graham pointed out that there were delays in providing data to KPMG and TPR. Khan said that there were no delays, just a need to investigate the requests. They relied on the company providing information to them but, once analysed, they provided this to KPMG in a timely manner.
Neville Khan was reminded that he and Tony Clare contacted Chris Martin (Chairman of the trustees) on 10 March 2015, one day before the sale, about issues on which the trustees were seeking clarification and asking for a clear email as Sir Phillip was getting ‘quite uptight’. What was he uptight about? Khan could not recall.
Khan said that it was quite clear that his clients wanted to find a solution for the pension scheme. Richard Graham said that the phrase ‘debt free’ had been used a lot in the deal discussions but it does not seem to have included the pension issue where there was a huge debt. What was the advice to Sir Philip on that? Khan said that they were not providing advice on the sale but it would typically mean ‘bank debt’ in the language used by insolvency practitioners. The pension would be termed as a liability.
Asked if Deloitte took this to mean ‘bank debt free’, what was the advice to Sir Philip on the pension scheme? Khan said that the advice was Project Thor and they are still looking at the different solutions today. Richard Graham reminded him that Project Thor came to an end the day after TPR asked for a huge amount of transactional detail, which Sir Phillip had described in an email as ‘ten years of bull....’. Was this not more than coincidental? Khan said that, at the time TPR had indicated, based on the information given to it by KPMG, they saw little concern to them about moral hazard and Khan thought that Sir Philip took comfort from that.
Project Thor was picked up again in January 2015 and on 25 January Neville Khan stated to Chris Martin that Sir Philip continued to receive approaches regarding the sale of BHS. Although Khan did not know who was making approaches, he believed that they were a series of serious bidders. Although saying he did not know who, he then stated that Deloitte did attend meetings with more than one party but, for confidentiality reasons, he did not disclose their identity. Deloitte also informed TPR that a sale was in contemplation. Deloitte had no channel to the PPF, which he said would have been through the trustees or the trustees and TPR.
As Project Thor had not been agreed and there was a standoff with TPR, Khan was asked if Sir Philip needed TPR’s approval before selling. Khan said it was not a question for them but the other advisers. He also said he did not know where the Arcadia commitment to pay £5 million over three years came from but he became aware of it after the sale when Deloitte was re-engaged to liaise between Arcadia, Retail Acquisitions and TPR.
Khan confirmed that there was an expectation that there would need to be Project Thor or a Project Thor-like arrangement after the sale and Grant Thornton (acting for Retail Acquisitions) came up with Project Vera. Sir Philip knew that, when the plans came through, there might be a discussion with him, Arcadia and Traveta.
Khan was questioned about the points of principle document that was produced which inferred that rising interest rates would solve the whole pension problem. He said Deloitte did not draft it and he had no recollection of any specific discussion around interest rates being a key item at that point.
Frank Field asked Khan if he knew about the recent meeting that took place on 27 June 2016 and if he had attended. He said that he did as Deloitte had a continuing engagement with Arcadia. The new pension project is now called Project Atlantic. He could not give any details around this without prejudicing the discussions. He said it is a work in progress. The people in attendance with Deloitte were Linklaters and Arcadia (represented by Sir Philip, Paul Budge and Chris Harris).
Asked why he attended since he had distanced himself from pensions in terms of advice, he said that Tony Clare led it for Deloitte but the client had requested his attendance, although he could not say exactly who at the client requested his attendance. The meeting was apparently initiated by TPR which had called him rather than Tony Clare. Is this not a little curious bearing in mind he had no involvement with the pensions?
Khan told the Committees that he suspected that TPR’s call came in after the clarity that Sir Philip gave to the Committees in his oral evidence about wishing to find a solution. He also said that Arcadia (effectively Sir Philip) had various conversations with TPR to try to find a solution against the backdrop of whether BHS would go into administration or there would be a CVA.
Frank Field suggested to Neville Khan that, even post sale, Sir Philip was really still running BHS. He said that, listening to all the evidence, in his impression, Sir Philip is Banquo’s ghost and he would continue to try to solve the pensions problem because he was, in effect, still running BHS. Asked by Richard Graham why this was taking so long, Khan blamed Retail Acquisitions and its advisers for not addressing the properties or the scheme. It was only in January 2016 when it started to run out of money that it came back to say ‘let’s try to see what we can sort’.
Khan endured some persistent questioning about Deloitte’s involvement around the sale and he kept batting this away saying that, in his professional opinion, he would expect a client to take their lawyer’s advice when consummating a sale of the company. In other words, he was pointing the finger at Linklaters.
Finally, when asked about the appointment of Duff and Phelps, Khan said that this appointment was made by BHS and its advisers. On 18 April 2016, about one month after the CVA, Deloitte and Arcadia (comprising Sir Philip and Paul Budge) met with the BHS board and its advisers and, as part of the meeting, a discussion took place on who should be appointed.
A couple of firms were mentioned which included Duff and Phelps and Khan was asked for his view on them. It was BHS or Retail Acquisitions that made the appointment and he did not feel that there was anything odd about that. In fact, it was perfectly normal for BHS to have consulted with its secured creditors. After the meeting, he said he called PPF to tell them of the likely administration.
These three sessions did not give us any clearer idea about the discussions that took place about the pension deficit and why Project Thor was really pulled. Neville Khan seemed to skirt around this but his involvement seems, on the face of it, a lot deeper than he has made out.
Why, for example, would TPR make him their main contact if Tony Clare was the architect of Project Thor. Why does Neville Khan get the nod from Arcadia too but struggles to say from whom? Everything points to Sir Philip because it has become clearer that Sir Phillip knew BHS was on the ropes at the end of 2013 when Neville Khan got involved. It also defies logic that Khan was not involved in discussions around the sale of BHS. He tries to distance himself from it yet then states that he was in meetings with prospective purchasers.
It is good to hear that something positive, in the form of Project Atlantic, is happening and we have no doubt that the Committees do have a very good idea of what that looks like despite what Neville Khan says about confidentiality.
As for Sutton, it does not appear that the Committees got what they were really after. There is an enormous amount of conflict between Sutton’s version of events and Chappell’s and they both accuse each other of lying, which could possibly point to one setting the other up.