Partners from the LB100 firms appeared before the House of Commons Business, Innovation and Skills Committee and the Work and Pensions Committee as part of the ongoing inquiry into the sale of BHS to Retail Acquisitions by retail tycoon Philip Green’s Arcadia Group for £1 last year.
Linklaters corporate partner Owen Clay advised Arcadia on the sale, while Olswang advised Retail Acquisition on the purchase. The latter is 90% owned by Dominic Chappell, who has previously been declared bankrupt on two occasions.
On the first day of hearings (May 23), Labour MP Frank Field, who chaired the 11-member committee, said: ‘We have got people like Sir Philip Green and Lord Grabiner QC who are very busy people who paid two legal firms to check up on the proper nature of the person they were selling to and it turns out this person was twice bankrupt, where do you think it puts those firms who told these key people that this was a good person to sell to?’
He added: ‘Don’t you feel responsibility? There were people paying you, presumably, very good fees and that there were two lots of firms involved and neither discovered the most obvious thing about this person?’
Linklaters’ Clay responded: ‘Given the particular terms of the contract, we did something that was, in my experience, unusual by asking another firm of solicitors what customer due diligence they had done. I was assured that they had done very detailed due diligence on that person.’
‘At the time, they had clearly been given a lot of information. They had done a lot of work and they came away with the impression he had been very open. They clearly had no sense at any time that there was any bad faith or dishonesty or anything like that that would have concerned them.’
At the second hearing (May 25) Conservative MP Richard Fuller asked Olswang GC Stephen Hermer what the firm’s understanding of finance available to the acquiring company was at the point of creating the legal documents for the sale. Hermer cited client confidentiality issues.
Field asked Hermer: ‘Is there no legal barrier to being able to buy a business with all these worries and debts when the courts have not declared you non-bankrupted?
Hermer said: ‘It is not legally impermissible, even as an undischarged bankrupt, to make an acquisition. I think that in this context there was clearly a question mark over Mr Chappell’s business acumen raised by the bankruptcy history, and in the context of a rescue bid for a large retail chain there was a judgment call that needed to be made on how much weight to put on that background.’
Hermer added that the firm does not give references about clients’ probity and about their business competence. ‘What we can do is confirm to people, if they ask – it is an unusual occurrence, but it did happen here – what due diligence checks we have done. What we do not do is give references on people’s probity and competence.’
Other lawyers involved include Nabarro partner Ian Greenstreet who also gave evidence having advised Arcadia owner Taveta on pensions matters between 2009 and 2015; as well as Eversheds pensions partner Emma King. Greenstreet and Clay declined to answer some questions citing client privilege – which neither of their clients had waived.
After BHS fell into administration in April, putting 11,000 jobs at risk, the committee launched an inquiry into the sale to Retail Acquisitions by retail tycoon Sir Philip Green’s Arcadia for £1 last year. Green also appeared before MPs to face questions over the affair. The Work and Pensions Select Committee is further investigating how the administration will affect the Pension Protection Fund (PPF), with the retailer’s pension scheme facing a £571m deficit.