BHS first entered administration on 25 April 2016. At the insistence of its major unsecured creditor, the Pension Protection Fund (“PPF”), it subsequently entered liquidation on 2 December 2016. It is now reported that Anthony Wright and Geoffrey Rowley of FRP Advisory, the liquidators of BHS, have filed claims against its parent company, the Arcadia Group.
No further details of the legal action are currently available, but given the claims are against Arcadia (as opposed to the former directors of BHS), it is likely that they could relate to antecedent transactions under the Insolvency Act 1986 including:
Preference (section 239): assuming Arcadia were an existing creditor of BHS, an unlawful preference would involve BHS having made payments to Arcadia ahead of, or otherwise putting Arcadia in a better position than, other creditors in the two year period prior to entering administration. BHS would need to have been insolvent at the time or as a result of granting the preference. Ordinarily it would be necessary also to prove that BHS were influenced by a ‘desire to prefer’ Arcadia; however, as they are connected companies this would be presumed (albeit the presumption is rebuttable).
Transaction at an undervalue (section 238): this would entail BHS having made a gift or making payments or providing assets to Arcadia for less than market value in the two year period prior to entering administration. Again, it would ordinarily be necessary to prove that BHS were insolvent at the time or as a result of such transaction but as Arcadia is a connected party, insolvency would be presumed (but, again, this presumption is rebuttable).
Transaction defrauding creditors (section 423): this is a transaction at an undervalue made at any time (subject to a maximum of 12 years prior due to limitation) with the intention of putting the assets of BHS beyond the reach of creditors – essentially a fraud claim and hence there is a higher burden of proof. However, there is no requirement that BHS should have been insolvent at the time or as a result of the transaction.
More details of the claims are likely to be revealed in due course but, if any of the above claims are proven, Arcadia could be obliged to return any property or repay an equivalent value to BHS for the benefit of the pool of unsecured creditors. Any such recovery would be welcomed by the PPF, which is still reportedly facing a shortfall of £208m, despite BHS’ former director - Sir Philip Green – having already made a contribution of £363m in to the pension fund.