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

antrobus

stator wrote: »

I wonder if he sold the business to Retail Aquisitions simply to try and pass the buck of the pension shortfall or whether he actually thought they would be able to survive. ....

I don't wonder at all. But then I'm a natural born cynic.

stator wrote: »

...It does seem like they didn't have much of a hope and I wonder who actually financed the loan that kept them going for 3 months.

Grovepoint.

stator

antrobus wrote: »

I don't wonder at all. But then I'm a natural born cynic.



Grovepoint.

Sounds like typical asset stripping behaviour then. Buy a company for £1. Take out a loan against the companies remaining assets. Pay yourself a huge bonus from that loan. Few months later put the business in administration.

Generali

stator wrote: »

Sounds like typical asset stripping behaviour then. Buy a company for £1. Take out a loan against the companies remaining assets. Pay yourself a huge bonus from that loan. Few months later put the business in administration.

That's pretty much the FT's take on things. Just after buying BHS, Mr Green decided he had underpaid quite considerably and dropped the increase in the value of the firm down to the bottom line apparently.

The Guardian had a very interesting telephone interview with Mr Green a decade or so ago (WARNING: Contains lots of words beginning with F)

Thrugelmir

kabayiri wrote: »

It was said on the news this morn that the pension fund was in credit by £5m in 2001.

That's some turnaround to go into deficit by £500m. I know market conditions have been challenging, but still.

An extended period of low interest rates is having an impact on pension schemes. A negative impact of monetary policy.

ChiefGrasscutter

I would expect long term low interest rates to cause major problems in the life insurance industry as well as the pensions sector.

vivatifosi

Andy_L wrote: »

AIUI the rules limit the amount of excess that the pension fund can have. IIRC it dates back to the old days when asset strippers would buy a company with a large pension surplus, shut it down & pocket the surplus.

That's my understanding too. Which was a very common situation in the nineties and v early noughties. It was a crazy notion and has stored up more than a few problems for schemes further down the line.

vivatifosi

kabayiri wrote: »

It was said on the news this morn that the pension fund was in credit by £5m in 2001.

That's some turnaround to go into deficit by £500m. I know market conditions have been challenging, but still.

On a technical note, will the PR pursue Mr Green or his wife Tina? As far as I am aware, wasn't she the beneficiary of the dividend money?

IIRC, there are a number of possible reasons for this.

First,c 2001ish you could consider a scheme fully funded on an accountancy/tech provisions basis. This was lower than current standards allow for.

There was also a big shift in mortality calculations as people were seen to be living longer.

Plus of course shares have had a chequered past over the timescale.

Also you had Gordon Brown raiding pensions.

antrobus

michaels wrote: »

But was it taking a pension holiday because the market was buoyant? There seems to be something asymmetric about pensions funds - the value is bound to fluctuate over time but when they are over-funded it seems the company can basically take the gain as extra profit and then when they are underfunded it has to come up with a token plan to fill the gap over a long period....I know BA as a company was often described as a pension company invested in aviation....

At one time maybe. Finance Act 1986 changed that. Building up large surpluses in a pension fund came to be regarded as tax avoidance. Any surplus repaid got taxed at 40%, any surplus retained in the fund lost tax exemption. Which largely forced companies to take pension holidays.

http://www.actuaries.org/IACA/Colloquia/Munich/Vol_2/James.pdf

There are always unintended consequences.

vivatifosi

I'm struggling to copy the exact para, but under new laws introduced in 2014 there is significant scope for scrutiny of dividend payments in schemes with a large deficit, see point 83:
http://www.thepensionsregulator.gov.uk/codes/code-funding-defined-benefits.aspx

The previous code, introduced 2006, was quite different:
http://www.thepensionsregulator.gov.uk/codes/code-funding-defined-benefits.aspx

I can't see any comment re dividend, however the repayment plan was very long and would likely have,been on the regulator's radar. Furthermore, the company would still have had a duty to pay down the shortfall, so though not explicit, large dividend payments would definitely have come under review.

If dividend was paid in 2003 that was before both of these codes of practice. Unsurprisingly, codes have got stricter over time, 2006 was quite a big change. Not sure of wording before then.

vivatifosi

antrobus wrote: »

A lot of it will be because BHS is 'insolvent', and thus the pension fund will now be valued on a buy-out basis. The deficit was £226m this time last year; now it's £571m.

I missed the bit about buy out basis. That's the most expensive way to value a scheme as you have to include the cost to transfer to an insurance co, about 20% more. In reality then, the deficit on tech provisions will be lower.