Two former BHS Directors ordered to pay at minimum £18m for wrongful trading

The two former directors of the BHS department store chain have been ordered by the court to pay at least £18m for their wrongful trading, and breach of corporate duties.

The decision against Lennart Chandler and Dominic Henningson, members of the Retail Acquisitions Team that purchased BHS from Philip Green for £1 in 2015 comes eight years after BHS collapsed into bankruptcy owing creditors including its pension fund more than £1bn.

Later this month, an hearing will be held regarding a second director, Dominic Chappell, who was thrice bankrupt and spent millions from BHS to buy a Bentley Continental, a yacht and other luxury items. He was imprisoned for 6 years in 2020 due to “brazen” nonpayment of taxes.

He was released in late 2013 but returned to prison again in March for violating the conditions of his license by working with Marco Pierre White’s son and partnering up to open three restaurants.

FRP Advisory acted as the liquidator for BHS and brought the case on behalf of creditors against the directors. It said that the £13m wrongful trade award it won from Henningson & Chandler was the biggest since the Insolvency Act of 1986.

Wrongful Trading occurs when directors of a company continue to trade even though they know that there is no realistic prospect for the company to avoid insolvency.

In a 533-page judgment of the high court by Justice Leech, it is revealed that the pair were ordered to pay an additional £5m in addition to the £13m they had already paid for violating their corporate obligations. FRP stated that the £5m was the first time in UK history that a claim for so-called misfeasance trade has been recognized.

Henningson, Chandler and Chappell may be required to pay an additional amount up to £133.5m together. This money would go to creditors.

This award, of which Leech stated that Chappell may be liable for a half, is based on the directors’ breach of fiduciary duty by continuing to trade instead of putting BHS through an insolvency procedure, and thus failing to promote success of the business in not taking into consideration the interests of their creditor.

After a second hearing, which will take place later in the month, a final decision will be taken on the total amount that the former directors must pay. Creditors of the retailer include its employees’ pension fund, as well as former suppliers.

Henningson Chandler stated that they have £20m in insurance coverage, including defense costs. Leech acknowledged that this amount would not cover all of the costs and expenses.

He agreed with the legal representative of the liquidator who stated that “to do this would be to send a wrong message to risk taking directors that they can escape liability if the did not obtain sufficient cover to indemnify them against wrongful trading”.

Chappell, a former bankrupt who was also a racing driver and had no experience in retail, bought BHS for £1 from billionaire Green in March 2015.

Chappell will be required to pay £9.5m to the BHS pension scheme in 2020 after failing to appeal a ruling of the Pensions Regulator. The Regulator had secured a cash settlement for £363m with Green, to save the schemes.

Green, who was once known for throwing high-profile parties in the past, has withdrawn from public life since 2020, when his Topshop empire collapsed. He settled claims with former BHS directors, including Darren Topp who remained on as chief executive after Green sold his business.

The parliamentary select committee’s investigation into BHS’s collapse in 2016 concluded that the failure of the company had left “many losers”, including the employees of the firm, its 20,000 pensioners, and the “reputation of the business”.

The report concluded: “The incident is not without winners.” BHS’s collapse has left many of the people closest to those decisions with a lot of money.

The FRP spokesperson said that the legal action is part of their efforts to “readdress this balance”. They also stated that these efforts have “led very substantial recovery for the estate, including in particular the Pension Protection Fund”.

Lynn Dunne is a partner in dispute resolution at Ashurst. She said, “The liquidators are very happy with the outcome of this wrongful trading case and the finding that the directors breached their duty to promote success for the company.” It is rare to win these heavy fact-specific claims. In fact, many never reach trial due to the difficulty of proving causation.

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