BHS 'could file for administration' threatening 11,000 jobs on Monday

vivatifosi

antrobus wrote: »

Thus I am similarly confused as to how they managed to generate a big deficit.

If I had to guess, and that's all I can do, I wonder if it is a combination of:

1. On a technical provisions basis, they had a (smaller) deficit in 2001, but were using accountancy basis so this wasn't yet showing. It's not an apples for apples comparison.

2. They failed to take account of the additional cost of servicing their pensions in the years after that. The cost of servicing a defined benefit pension have gone up massively. When I was first enrolled in my DB scheme, I put in 7% and the firm put in a similar amount (I think it was about 8%) with a promise to make good the shortfall if one ever arose. Since that time, the cost to the firm has risen to about 20-30%. They may not have responded to this change quickly enough.

3. They were probably invested in equities when the markets fell. This is an ongoing issue for firms. They had about 45-50% in equities after this, so almost certainly had the same or more at the time of the crash.

4. It is also quite possible that the firm pushed back at any effort by the trustees to shorten the repayment period and request larger shortfall repayments. In doing this the firm should, in return, have offered a covenant. I still find the length of the payment term staggering though.

antrobus

The BBC now reports that BHS is to go into liquidation.

http://www.bbc.co.uk/news/business-36437445

vivatifosi

IoD on BHS Failure:

https://www.theguardian.com/business/2016/jun/03/bhs-collapse-iod-lord-myners-accuses-sir-philip-green

The IOD chief, Simon Walker, told BBC Radio 4: “Sir Philip Green is a very high-profile business leader. He is the person who is on the frontpage with Kate Moss on his arm and who has a £100m superyacht and so on. When someone like this ends up behaving like this, people think that’s how business is, and it’s not. The majority of business leaders are people who are more likely to have mortgaged their homes to keep their company going than to own this kind of lavish thing.”

Asked about the calls for Green to help shore up the pension fund, Walker said: “He certainly has moral responsibilities and we need a proper investigation.

“You can’t just get yourself off the hook by selling the business to someone who has been bankrupt three times and is a former racing driver with no retail experience. BHS was probably going to fail anyway. But it is the manner of its failure and the fact that it ends up dumping huge liabilities on to the taxpayer that is a problem.”