BHS collapse could cost its creditors £1.3bn, CVA document warns

The true extent of the crisis facing the department store group was laid bare after it filed a proposed company voluntary arrangement (CVA) at the High Court yesterday, which revealed that the business has made a loss for seven consecutive years.

BHS said that the black hole in its pension fund now stands at £571m on a buyout basis – that would be the cost if an insurance company were to take over the pension liabilities.

The figure has rocketed by almost £120m since the last valuation of the scheme’s deficit, back in 2012.

BHS is already in talks with the Government-supported Pension Protection Fund and the Pensions Regulator. Previous owner Sir Philip Green, who sold the business to Retail Acquisitions for a nominal £1 a year ago, is also understood to have been asked to contribute to the cost of rescuing BHS’s ailing pension scheme.

Debt to landlords

Meanwhile the retailer’s landlords are owed almost £517m, the document states. As previously reported, BHS is seeking rent reductions on more than half of its store estate and has asked for rents to be slashed by as much as 75% in some locations.

It has divided its stores into three categories for the CVA: a group of 77, which would be unaffected, 47 which would be viable if rents were reduced to “market levels” and 40 which could trade for 10 months while negotiations with landlords were conducted to reduce rents “substantially”.

In most of the 77 viable stores, BHS also wants to start paying its rent monthly, rather than quarterly.

The proposed CVA, which has been drawn up with KPMG, claims BHS will be unable to trade in its current form beyond its next quarterly rent payment date, March 25.

Three scenarios

According to the CVA, if enough creditors agree to the proposal, some of them will recover all the money they are owed, but some landlords will recoup just 6.15p in the pound.

The document warns that landlords will be burdened with even bigger losses if BHS plunges out of business.

A second scenario could usher in an administration period, allowing specialist accountants to recover as much as possible from BHS. But that could allow some landlords to get 1.23p in the pound, while others would be left with as little as 0.05p.

The CVA states that under that scenario, losses to creditors would total £1.1bn.

But those losses could hit £1.3bn if BHS slumps into liquidation before March 25, since all landlords could only expect to receive 0.05p in the pound.

BHS’s CVA requires approval from at least 75% of its creditors in order to go through. A vote is poised to take place on March 23.

Warning

Ahead of that crucial meeting, the document warns: “If the CVA proposal is not approved at the relevant meetings, or is otherwise not implemented, it is very likely that BHS Limited will no longer be able to trade as a going concern, which would result in the appointment of administrators.”

It goes on to state: “Because the treatment of landlords and other CVA creditors who are compromised by the CVA proposal is better than in the alternative… scenarios, the directors consider that the CVA proposal is fair compared to administration or liquidation.”

BHS also claims in the CVA document that, if reduced bills were accepted by creditors and it was still unable to meet those payments after a two-year turnaround period, creditors would have their original claims restored.

The document adds that creditors “should be in no worse a position than if they CVA proposal had never been approved.”

BHS has already revealed plans to cut 370 jobs in head office and in stores as part of its radical turnaround bid.

BHS boss Darren Topp exclusively told Retail Week that he is “confident we’ll get over the 75% threshold” at the pivotal vote later this month.