In a landmark ruling, the High Court has delivered a damning verdict against the former directors of BHS eight years after it collapsed and 11,000 people lost their jobs.
Anthony Wright and Geoffrey Rowley of FRP Advisory Trading, the joint liquidators of the once beloved high street retailer British Homes Stores (BHS), brought the claims against several former directors.
Dominic Chappell, Lennart Hennington, and Dominic Chandler were named as defendants in this lawsuit; however, it was noted that Chappell did not participate in the trial.
The 533-page judgment by Mr Justice Leech focused on Hennington and former BHS general counsel Chandler.
BHS collapse
Chappell is the man who bought BHS from Sir Phillip Green in 2015 for £1 (one pound) and saw it collapse into administration 13 months later, on 25 April 2016.
BHS’s collapse was one of the highest-profile retail insolvencies of recent years, with outstanding debts of more than £1bn.
The claims against the directors were for alleged wrongful trading, misfeasance, and breach of statutory and fiduciary duties. The court meticulously examined the events from March 2015 to April 2016, a critical period leading to BHS’s downfall.
On Tuesday, Mr Justice Leech broke down his findings in his very long judgment, ruling that Henningson and Chandler are each liable for wrongful trading, misfeasance trading and misfeasance.
The court found that the directors’ actions breached the threshold for wrongful trading, and in so doing, the judge handed down one of the largest ‘wrongful trading awards’ as he ordered them to contribute £6.5m each to the company’s assets.
The judge’s decision was unambiguous. He indicated that an even more significant award would be granted to recognise how the directors breached their fiduciary duties to BHS stakeholders by continuing to trade rather than putting the company into an insolvency process.
He has listed a hearing to consider consequential matters, which will include the appropriate measure of loss, interest, costs, and any other relief to be paid by the three defendants.
Dominic Chappell’s absence
Chappell did not show up to the trial due to ill health. Following his release last November, he was recalled to jail in March over breaching licence conditions. He was originally sentenced for tax evasion. The claims against him have yet to be fully determined and will be considered further later this month.
While another former director, Keith Smith, was not involved in this litigation as he had settled with the liquidators.
The FRP Advisory Trading liquidator had partners Adam Brown and Ben Larkin from Jones Day as its legal representation. While Henningson had Bark & Co and Chandler had Olephant Solicitors.
Commenting on the decision, Lynn Dunne, dispute resolution partner at law firm Ashurst said: “The success of the wrongful trading claim and a finding that the directors acted in breach of their duty to promote the success of the company is a coup for the liquidators.
Succeeding in these type of heavy fact specific claims is extremely rare and, indeed, most never make it to trial, not least given the difficulties in proving both causation and loss. It remains to be seen how the trial against Mr Chappell which is based on the same facts now proceeds.”