In March of this year BHS successfully gained the support of a number of landlords via a Creditors Voluntary Arrangement (CVA). This enabled BHS to reduce their rent bill. In my blog entry of 28th March 2016 I indicated that companies entering a CVA had to ensure ongoing supplier support . Without the ability to obtain supplies on sensible credit terms most companies cannot survive . Within weeks of the CVA being approved BHS is in Administration.
As soon as Sir Philip Green sold the company for a £1 I feel the writing was on the wall. The new owners appeared to have no experience in the retail sector and clearly there was a massive task in turning BHS into a profitable company from one that had not made money in years. Following the sale the credit agencies reduced recommended limits to zero and cautious suppliers would certainly have ceased supplying goods on credit. How many suppliers took this decision is something we will find out over the next few weeks. As at 30th August 2014 trade creditors were owed £55.9 million. In addition there is a £571m pension deficit.
The company is now facing Administration with the loss of 11,000 jobs and creditors facing losing £millions which will may lead to some suppliers facing Administration or Liquidation. The Administrators will seek to realize assets but with High Street having a tough time there will hardly be a queue to but the company out of Administration. I cannot see any money for creditors.
What lessons can be learned from this disaster. As soon as the new owners purchased the business for £1 suppliers should have had a good look at the new owners track record in the retail sector and their plans to revitalize the company. The answers to both questions were hardly encouraging. The driving force behind the takeover team was Dominic Chappell who has been made bankrupt twice and had no experience of running a business the size of BHS. So there was sufficient information for suppliers to make an informed decision. The decision should have been to cease supplying on credit. A tough decision but this who took that decision will not be facing serious bad debts.
Hugh Craen has had over twenty years experience in the factoring industry.
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