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Directors in hot water – BHS Liquidation lessons

13 June 2024

Do you remember British Home Stores? The High Street titan where a cozy jumper, strobe lighting set and sandwich toaster could be easily bagged in a single 20 minute visit with a pot of tea enjoyed on the way out?

I recall many a joyous visit with my Mum and Brother in the 80’s, with the base on Lord Street, Liverpool being one of the flagship super stores.

Sadly, those glorious hey days came to a rather abrupt end. The Judgment handed down by the High Court this week in RE BHS Ltd (In Liquidation)(2024) addresses the dramatic fall out and serves as a timely reminder for Directors of the perils of continuing to trade in a company where insolvency is likely.

The judgment concerns claims brought by the liquidators of BHS Group Limited and its subsidiaries against Dominic Chappell, Lennart Henningson, and Dominic Chandler. The case revolves around allegations of wrongful trading and misfeasance under sections 212 and 214 of the Insolvency Act 1986, focusing heavily on directors’ duties and financial management leading up to the companies’ insolvency.

Factual Background

1. Overview of BHS Group Limited: BHS, a major UK retail company, was renowned for selling clothing, homeware, lighting, and furniture. Established in 1928, it had grown to be one of the UK’s most recognized retail brands. By 2015, BHS employed about 11,500 people and operated 164 stores in the UK, along with 67 franchise stores in 16 countries.

2. Decline and Financial Struggles: Over the previous decade, BHS’s profitability declined significantly. Competition from value retailers like Primark and clothing lines in supermarkets intensified, and BHS struggled to adapt to digital sales and retail park-based shopping. Between 2009 and 2014, BHS faced cumulative operating losses of £442 million.

3. Ownership and Management: Before 11 March 2015, BHS was owned by the Taveta group, associated with Sir Philip Green and his wife, Lady Tina Green. Taveta had supported BHS financially, providing £256 million, including £72 million in the preceding seven months before the sale.

4. Pension Schemes: BHS sponsored two defined benefit pension schemes, the Main Scheme with 20,462 members and the Senior Management Scheme with 233 members. The 2012 triennial valuation revealed significant deficits: £253.2 million on a PPF basis, £232.5 million on an ongoing basis, and £514.5 million on a buy-out basis. The agreed annual contributions were £10 million until 2036, with reviews due as part of the triennial valuation process.

5. Project Thor: In January 2014, Taveta initiated Project Thor to restructure the pension schemes through a Regulated Apportionment Arrangement (RAA), requiring clearance from the Pensions Regulator. Deloitte advised that BHS needed to contribute £54 million to a new scheme. However, by autumn 2014, Taveta put Project Thor on hold due to increasing market contributions.

6. Project Albion: From April 2013, Sir Philip Green sought to sell BHS. Despite early negotiations with Paul Sutton, whose history included bankruptcy and fraud, the deal fell through by May 2014. Dominic Chappell then emerged as a key player, though he too had a history of bankruptcies and limited retail experience. The sale to Chappell’s Retail Acquisitions Ltd (RAL) finalized on 11 March 2015 for £1.

7. Key Figures in RAL: RAL included Dominic Chappell, his father Joseph Chappell, Eddie Parladorio, Stephen Bourne, and Mark Tasker. Despite the presence of high-profile advisers, concerns remained about the credibility and financial stability of RAL’s leadership.

8. Financial Mismanagement: Post-acquisition, BHS continued to struggle financially. Directors were accused of failing to consider creditor interests, continuing trading despite knowing insolvency was imminent, and mismanaging assets.

9. Liquidation and Administration: By April 2016, BHS Group and its subsidiaries entered administration and later voluntary liquidation. Liquidators Anthony Wright and Geoffrey Rowley were appointed, leading to the present claims against the directors for their alleged failings.

10. Proceedings and Claims: The liquidators commenced proceedings under sections 212 and 214 of the Insolvency Act 1986, focusing on wrongful trading and various misfeasance claims against Chappell, Henningson, and Chandler.

Key Judgment Findings on Directors’ Duties in Insolvency Situations

The judgment extensively examines the responsibilities of directors in insolvency scenarios. Here are the ten key findings:

1. Duty to Creditors: Directors must prioritize the interests of creditors once a company is nearing insolvency. The court found that the directors of BHS failed to do so, continuing operations when they knew insolvency was inevitable.

2. Knowledge and Awareness: Directors are expected to be aware of the company’s financial state. The judgment emphasized that Chappell, Henningson, and Chandler either knew or should have known about BHS’s dire financial situation from their appointments.

3. Wrongful Trading: Continuing to trade when there is no reasonable prospect of avoiding insolvency constitutes wrongful trading. The directors were found liable for continuing BHS’s operations despite clear signs of financial failure, resulting in increased liabilities.

4. Misfeasance Claims: The judgment detailed specific instances of misfeasance, including asset mismanagement and failure to act in the best interests of creditors. These claims highlighted the directors’ negligence and misconduct.

5. Individual Accountability: Each director’s role and decisions were scrutinized. The court found that Dominic Chappell’s actions, including misleading creditors and engaging in financial misconduct, significantly contributed to BHS’s downfall.

6. Financial Impact: The court calculated the increase in net deficiency (IND) due to the directors’ actions. These figures were critical in establishing the extent of financial damage caused by the directors’ failure to act responsibly.

7. Directors’ Conduct: The judgment highlighted the unacceptable conduct of the directors, particularly Chappell’s personal use of company funds and failure to meet tax obligations. Such behavior was deemed highly detrimental to the company’s financial health.

8. Procedural Issues: The judgment also addressed procedural matters, including the directors’ defense strategies and the handling of witness statements. The court emphasized the importance of fair and transparent proceedings.

9. Legal Precedents: The judgment referenced key legal precedents in wrongful trading and directors’ duties, reinforcing established principles while applying them to the specifics of the BHS case.

10. Importance of Credibility: The credibility of directors is paramount. The court’s findings against Chappell, including his previous bankruptcies and criminal convictions, underscored the need for trustworthy and competent leadership in corporate governance.


The judgment serves as a critical reminder to Company Directors that – when the going gets tough – the tough shouldn’t necessarily keep going. In situations where a business is in decline, it is important that Directors come together and confront the situation realistically and reasonably. If a likely point of no return has been reached, confronting that fact and taking professional advice as to next steps is to be strongly recommended. This Judgement makes clear that – if Directors neglect the realities of the situation and continue to trade and lend – the consequences to Directors can be significant.