Yahoo Finance Two former BHS directors ordered to pay at least £18m over wrongful trading
Two former directors of the collapsed department store chain BHS have been ordered to pay at least £18m after the pair were found liable for wrongful trading and breaching their corporate duties.
The ruling against Lennart Henningson and Dominic Chandler, members of the Retail Acquisitions team that bought BHS for £1 from Philip Green in 2015, comes eight years after the retailer collapsed into administration owing creditors, including its pension fund, more than £1bn.
A hearing relating to a further director, Dominic Chappell – the thrice-bankrupt leader of Retail Acquisitions who spent millions of pounds from BHS on a yacht, a Bentley Continental and other luxuries – is expected later this month. He was jailed for six years in 2020 over “brazen” non-payment of tax.
He was released late last year but returned to prison in March after breaching his licence conditions by partnering with the chef Marco Pierre White and his son to set up a trio of restaurants.
FRP Advisory, the firm acting as liquidator to BHS, brought the case against the directors on behalf of creditors and said the £13m wrongful trading award it had won from Henningson and Chandler was the largest since the introduction of the Insolvency Act 1986.
Wrongful trading occurs when a company’s directors have continued to trade despite knowing there was no reasonable prospect that the company could avoid insolvency.
A 533-page high court judgment by Justice Leech indicates that, on top of the £13m, the pair have been ordered to pay a further £5m for breaching their corporate duties. The £5m is the first time a claim of so-called misfeasance trading has been successfully recognised in the UK, FRP said.
Henningson and Chandler – along with Chappell – may have to pay an even larger amount of up to £133.5m combined, which would ultimately be handed to creditors.
That award, which Leech said Chappell could be liable for half of, relates to the directors breaching their fiduciary duties by continuing to trade rather than putting BHS into an insolvency process, thus failing to promote the success of the company in not considering the interests of their creditors.
A final decision on the overall amount the former directors will have to pay will be made after a further hearing later this month. The retailer’s creditors include the employees’ pension fund and its former suppliers.
Henningson and Chandler said they had £20m of insurance cover including defence costs. Leech said he recognised this would not be sufficient to cover the amount they had to pay, including costs.
He said he agreed with the liquidator’s legal representative who said “to do so would be to send the wrong message to risk-taking directors that they could escape liability if they did not obtain adequate cover to indemnify themselves against wrongful trading”.
A former bankrupt and former racing driver with no retail experience, Chappell bought BHS from the billionaire Green for £1 in March 2015. Just a year into his ownership, the chain collapsed with the loss of 11,000 jobs and a £571m pensions black hole.
In 2020, Chappell was ordered to pay £9.5m into the BHS pension schemes after he failed in his appeal against a ruling by the Pensions Regulator, which had already secured a £363m cash settlement with Green to rescue the schemes.
Green, once well known for his high-profile parties, retreated from public life after the collapse of his Topshop empire in 2020. He paid £8m to settle claims against former BHS directors including Darren Topp, the chief executive who stayed on after Green sold the business.
A lengthy parliamentary select committee investigation into the collapse of BHS in 2016 found that its demise had created “many losers” including its employees, the 20,000 members of its pension scheme, and “the reputation of business”.
But its concluding report added: “The episode is not, however, without winners. Many of those closest to the decisions that led to the collapse of BHS have walked away greatly enriched despite the company’s failure.”
A spokesperson for FRP said the legal action was part of its efforts “to readdress that balance” and its efforts had “led to very substantial recoveries for the estate including, in particular, the Pension Protection Fund”.
Lynn Dunne, a dispute resolution partner at global law firm Ashurst, said: “The success of the wrongful trading claim and a finding that the directors acted in breach of their duty to promote the success of the company is a coup for the liquidators. Succeeding in these types of heavy fact-specific claims is extremely rare and, indeed, most never make it to trial, not least given the difficulties in proving both causation and loss.”
