Parliament Complaining About Professional Advisers Re: BHS : Might Want to Look To Their Own Actions!

Much as some of the darker elements of my character privately quite enjoy seeing other professional advisers facing criticism for their actions in relation to BHS – It is worth recording that no-one has legitimately alleged illegality in relation to their actions.

Indeed, Parliament may wish to observe that it is highly arguable that it was a relatively recent relaxation in the law in this area which (seemingly) considerably assisted Retail Acquisitions with its purchase of BHS for a nominal GBP £1 (in 2015).

Prior to 2008, it was the legal position that a company being acquired was restricted from giving ‘financial assistance’ for the acquisition of shares in that company.

The rationale behind restrictions upon 'financial assistance' is to protect creditors of the business being acquired from having the assets of the company (at the point of acquisition) being ‘diverted’ from the body of assets available to pay creditors claims (in circumstances of the relevant company subsequently going into an insolvency).

‘Financial Assistance’ includes the making of loans by a company being acquired to its purchaser.

Accordingly to media reports, material loans were made by BHS to Retail Acquisitions, shortly following the purchase (and apparently used for a 'variety of purposes' – including the payment of professional fees which had allowed the transaction to occur).

Prior to 2008, UK company law allowed a private company to give financial assistance for the acquisition of its own shares - generally only if the so-called ‘whitewash’ procedure was followed.

Broadly, the most significant steps in a ‘whitewash’ involved the following:

• All directors of the company being acquired swearing a statutory declaration that, in their opinion, the company would remain solvent for at least 12 months from the date the financial assistance is given; and

• The relevant company's auditors giving a report that they had inquired into the affairs of the company and they were not aware of anything to indicate that the directors' statutory declaration was unreasonable in all the circumstances.

(It is worth observing that BHS ‘survived’ for a little over 12 months after its acquisition by Retail Acquisitions).

After 2008 there were no longer statutory restrictions in the UK against a private company providing financial assistance for the acquisition of shares in itself.

As a result, private companies (such as BHS) no longer have to undertake a "whitewash" to avoid the prohibition.

I can only speculate as to whether the directors of BHS at the point of sale to Retail Acquisitions (or at least those who were not ‘men of straw’) would have been comfortable swearing the relevant statutory declarations of continuing solvency.

What I am somewhat more certain of, is that I suspect BHS’ auditors might have had difficulty in producing any relevant report requested of them.

At the very least it would have involved them looking to the financial resources of Retail Acquisitions in some detail.

This whole area of company law is subject to European Union law and therefore subject to an element of similarity across all EU jurisdictions.

However, my understanding is that most (if not all) other EU jurisdictions are more restrictive in this regard than the UK.

The UK has consistently sought to relax the financial assistance legislation (with the stated aim of creating a ‘dynamic economy’ and ‘removing red tape from business’).

These are all highly desirous aims.

The question has to be – Has it been at the expense of creditors?

Discuss? / Offline / Sometime!