BHS boss to pay £56m for letting retailer fail

Dominic Chappell, former CEO of collapsed retail group BHS, has been ordered to pay £56m in compensation for wrongful trading

The High Court has ruled that Chappell knowingly enabled BHS Group Limited to continue trading at a loss on terms which were highly disadvantageous and contrary to the interests of other creditors.

He was also criticised for his strategy to ‘sell off the crown jewels to keep trading’.

Chappell was charged with claims of wrongful trading, trading misfeasance and individual misfeasance in a case brought by the joint liquidators from FRP Advisory.

He had not attended an earlier hearing with fellow defendants, and also did not turn up at the High Court for this court appearance, heard over two days in June.

The High Court has now ordered Chappell to pay half of a total compensation bill of £110,230,000, although he has the right to appeal the decision.

To recap, BHS was sold to Chappell’s company, Retail Acquisitions Ltd (RAL) by Sir Philip Green’s Taveta Group, owners of Top Shop and TopMan, for £1 in March 2015.

Just over a year later, in April 2016 the retailer collapsed with total debts of £1.3bn, including a pension deficit of £571m resulting in the loss of 11,500 jobs and the closure of 164 stores.

On the charge of wrongful trading, the judge Justice Leech said that Chappell was able to ‘act with impunity’ because neither he nor RAL had any real stake in the BHS Group. Chappell used the extended period of continued trading to ‘misappropriate further sums (or, at least, to try to) while [fellow director Lennart] Henningson turned a blind eye to his conduct’.

The Judge said: ‘Mr Chappell’s strategy was to sell off the crown jewels to keep trading even though there was little or no chance of achieving the target business plan.’

The judge added that Chappell ‘failed to have regard to the interests of creditors even though the debts which RAL owed to BHSGL had wiped out the small investment which it had made in the group and continued to trade knowing that it was more probable than not that the companies would go into insolvency’.

On the issue of damages, Justice Leech said: ‘I am satisfied that whichever measure of damage is appropriate, all of the losses fell within the scope of the Sequana duty which Mr Henningson and Mr Chappell owed to the creditors of the companies.

‘In particular, I am satisfied that there is a clear nexus between the risk of harm against which they assumed a duty to protect the companies’ creditors and the losses which the companies have suffered.’

The companies continued to trade at a loss and funded those losses in part by charging their property assets on disadvantageous terms, particularly by selling the Oxford Street store for £50m which could have been used by the liquidators to settle some of the creditor bills.

When they were unable to obtain a further working capital facility and implement the July 2015 turnaround plan the risk of damage to the companies’ creditors was exacerbated.

‘This was the very risk against which Mr Chappell and Mr Henningson assumed a responsibility to avoid and could and should have avoided if they had complied with their duties. There is a clear nexus between the scope of their duties and the losses which the companies suffered,’ Justice Leech said.

The Court ruled that Chappell and Henningson were jointly liable to pay equitable compensation to the companies totalling £110,230,000.

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