BHS

Jeremy Quin Excerpts

Thursday 20th October 2016 Commons Chamber

[Jeremy Quin (Horsham) (Con)]

It is a pleasure to follow the wise words of the hon. Member for Hartlepool (Mr Wright), and it was a pleasure to serve with him on the joint Committees. May I associate myself with the remarks that he and the right hon. Member for Birkenhead (Frank Field) have made about our hard-working Committee Clerks throughout the process?

When the news of BHS broke, I felt bad about the loss of a high street icon, desperate for the employees affected—including those in my constituency—and very concerned about the pensioners involved. I have a confession to make to the House, however. My gut reaction was that a Committee inquiry would simply rake over the ashes of a sad event, with little to be gained. I was initially not convinced that the inquiry would be productive, but I was persuaded to take part. I am glad that I did, and I am glad that this inquiry has taken place, because we can lay concerns before the House.

The largest concerns, for me, are not particularly about the trading circumstances leading to the demise of BHS—although it seems, as the hon. Member for Hartlepool has said, as though there was little magic around the revitalisation of BHS’s margins in the early years of its ownership by Sir Philip Green. Dividend payments, generous as they were and exceeding profits as they did, may or may not have undermined BHS through underinvestment. That would be hard to prove, but it is a perfectly sensible question to pose.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

Should we not be raising questions if any company pays out dividends in excess of its free cash flow? That should ring alarm bells, and perhaps there should be a test that companies need to meet if they behave in such a way.

[Jeremy Quin]

The hon. Gentleman, as so often, reads my mind. If he is a little patient, he will hear me make a similar point later in my speech.

On the period during which very generous dividends were paid, directors cannot be expected to have the gift of prophecy, but they can be expected to understand the fundamental trends driving the underlying profitability and sustainability of their business. I am far from convinced that that was the case in this situation. The most serious questions, as raised by the hon. Members for Hartlepool and for Torfaen (Nick Thomas-Symonds), are about the corporate governance of large private companies with millions of employees and pensioners.

Unlike my feisty friend, my hon. Friend the Member for Bedford (Richard Fuller), I intended not to refer to the individuals directly concerned in the sad demise of BHS, but to focus on the more general lessons to be learned. I am afraid that I have been drawn back to the circumstances of BHS after reading the joint legal opinion produced for Taveta Investments Ltd by learned counsel last night. As the right hon. Member for Birkenhead said, the two lead QCs make a point of saying that they are friends of the chairman of TIL. I hope that their report, which is considerably longer than the report of the joint Committees that it analyses, was not unduly costly. The report basically starts by saying, “Let’s pretend this is not a parliamentary inquiry, but some other kind of inquiry. Would that type of inquiry be set aside by the courts?” Having set up an irrelevant question, the opinion produces an irrelevant answer.

[Michelle Thomson (Edinburgh West) (Ind)]

Does the hon. Gentleman agree that it is somewhat ironic for Sir Philip, who has complained bitterly about an outcome with which he does not agree, to be able to pay handsomely for an 81-page report from two eminent QCs, given that I imagine the pensioners and employees are not, unfortunately, able to resort to such a tactic?

[Jeremy Quin]

I suppose the answer depends on the quality of the report. Frankly, having read it, I find that it contains a series of straw men that have been set up for demolition. In my view, it does not help Members, the pensioners or anyone to understand the circumstances of the demise of BHS.

To put at rest the minds of learned counsel, the joint Committees did not object to a dowry being provided on the sale of BHS, and certainly did not question its legality. However, we questioned the sufficiency of the cash and the choice of partner in the circumstances that BHS faced. We did not question the concept of a company being sold for £1. Clearly, that is a matter for Taveta Investments (No. 2) Ltd, the selling company, which received the £1. It is unfortunate that TIL2, which is ultimately controlled by Lady Green, is still paying back to Lady Green the £200 million consideration for its acquisition of BHS in 2009. This consideration was satisfied by £200 million of loan stock provided to three overseas companies controlled by Lady Green, with a coupon of 8%.

We would need a much longer debate—I am very mindful that other Members wish to participate—to draw out all the straw men contained in the joint opinion of learned counsel, but several others are produced in the context of corporate governance. A rare point on which the joint Committees’ perspective seems to be shared by learned counsel is on the—in our view, lax—governance of the sale, as was so eloquently described by my hon. Friend the Member for Bedford. However, learned counsel state that that is an irrelevance, because the shareholders in TIL could in any event provide a direction, so the directors were in no position to prevent the sale of BHS to any party. That may be true legally, but it should raise questions for this House. Learned counsel tell us that TIL is 88%-owned by Taveta Ltd, a company registered in Jersey, and 12% by six minority shareholders. We are informed that the ultimate beneficial owner of the Jersey company is Lady Green, and that under the articles, Lady Green, acting with any one of the minority shareholders, could have directed the sale of BHS at any time and on any terms.

The right to own and dispose of property under English law is absolutely fundamental, and Parliament would be wise to tread very softly, but I am concerned in this context about checks and balances—not only on the sale, but more generally. What is the value of a section 172 provision, telling directors to have regard to other stakeholders, in these circumstances? What is the role and purpose of non-executive directors, especially when the 88% shareholder is not present around the boardroom table?

To my mind, it is not appropriate for directors serving private companies to decide that they can take an approach different from what is good corporate governance, purely because they can ultimately be directed. That would make it more important, especially on major or related transactions and on honouring commitments to pensioners, that they should bend over backwards to adhere to strong and demanding codes and be prepared to call out owners if they feel actions are taken that do not have sufficient regard to other stakeholders. There are thousands of very successful large and medium-sized private companies employing millions, and for those millions, ownership should be as transparent as good corporate governance.

There are other issues, from which I fear I have been sidetracked by the legal opinion, that the House should consider. As the hon. Member for Hartlepool mentioned, corporate governance codes should be applied not only to listed companies, but to those owned privately. On related party transactions, independent valuations or independent opinions are important when such transactions exceed de minimis levels. There is the issue of the utility of the requirement to have regard to other stakeholders in section 172 and how directors can be expected to do so when they owe responsibility elsewhere. There is the question of the appropriateness of dividend payments above certain thresholds, particularly if a pension scheme is in serious deficit. I was challenged on that point by the hon. Member for Ross, Skye and Lochaber (Ian Blackford).

There is the issue of the requirement for courts to be cognisant of pension deficits, as well as of creditors, when considering applications for corporate restructurings and capital reductions. In private mergers and acquisitions, where pension problems may be less transparent than in the listed market, consideration should be given to compulsory engagement with the Pensions Regulator and with the trustees. For both directors and advisers engaged in sale processes in respect of a company in which the Pensions Regulator has already expressed concern and a sale is not being pre-cleared by the Pensions Regulator, all parties should be very aware of the actuality of the counterparty to whom they are selling. English law requires no due diligence to be done on the buyer—nor, in my mind, should it do so—but common sense suggests a certain wariness to be wise.

In conclusion, there are lessons to be learned from this sad story. Above all, however, we are all focused on the loss of a well-loved icon, the employees who have been made redundant and the pensioners who are rightly worried, but whose plight may yet be mitigated by Sir Philip. Such an act would, indeed, be honourable and very welcome. I understand from the radio this morning that he is, not for the first time, planning to meet the regulators in the next few days. Time will tell whether pensioners have been waiting for a result or have been made to endure a particularly poorly directed “Waiting for Godot”.

--- Later in debate ---

[Richard Graham]

Will the hon. Gentleman give way?

[Jeremy Quin]

Will the hon. Gentleman give way?

[Andrew Bingham]

Will the hon. Gentleman give way?

[Ian Blackford]

I will make some progress and then perhaps I will give way—[Interruption.] I will give way in a second.

Philip Green’s weak apology is a case of too little, too late. He lined his pockets and did not stop to think about his employees. On Tuesday 18 October, Philip Green decided to say he was “sad and very sorry” for the hardship caused by the BHS collapse and that he still wanted to sort out the pension deficit. Green has still tried to defend the indefensible and duck his duties to workers by shifting the blame.

[Jeremy Quin]

I am grateful for being allowed to intervene on the hon. Gentleman. The point that Government Members are making is simply that we have heard a very long speech about systemic pension risk. That may be an issue, but it could be an issue for another occasion. The Select Committees produced a worthy report of more than 60 pages specifically about BHS. I am relieved that the hon. Gentleman is actually addressing BHS, the employees who have lost their jobs and the pensioners who have been left with less benefits than they should rightly have expected. I am delighted he is finally getting to that part of his speech. We look forward to the rest of it.

[Ian Blackford]

I thank the hon. Gentleman. I am aware of the time and I am about to sum up. The point I was making is that we have been put in a situation whereby workers have suffered as a consequence of the actions of Philip Green, but the Government must not think that they can walk away from their responsibilities to regulate business and pension schemes in this country effectively.

I recognise that Sir Philip owes it to the BHS pensioners to find an urgent resolution, but we need to look at corporate governance in the UK to see what can be done to offer protection from the kind of corporate excesses that have taken place with BHS. The Prime Minister has talked about doing that, so she should bring forward the proposals. While Philip Green’s hands are filthy, the Tory Government’s paws are not so clean either. After a lifetime of shying away from an effective crackdown on the corporate irresponsibility of the likes of Green, we are beginning to catch up in the United Kingdom. It is about time that the UK Government took action and the Minister gave us some answers.