Revealed: Arcadia’s fate hinges on £50m pension demand

Pensions watchdogs are demanding that Sir Philip Green hands another £50m to the retirement scheme of his Arcadia retail empire to avert its collapse next week.

Sky News has learnt that The Pensions Regulator (TPR) has told Sir Philip and his advisers that it wants him to contribute the £50m on top of an existing proposal from his family to inject £100m into the Arcadia pension fund.

The tycoon has also pledged roughly £185m of security in the form of its flagship Topshop store on London’s Oxford Street and other assets to the pension fund, while the company would also inject £25m in annual contributions during the next three years.

City sources said on Friday, however, that TPR wanted the £360m aggregate pension funding package to be increased to £410m, with the difference made up by the additional payment.

The bombshell demand for a further £50m, which is due to be discussed throughout the weekend and into the early part of next week, underlines the knife-edge on which Sir Philip’s business – and his legacy as a retailer – now hinges.

The outcome of the standoff, which represents Sir Philip’s second bust-up with pension regulators in three years, will determine the future of a retail behemoth employing 18,000 people.

Creditors are due to vote next Wednesday on a series of company voluntary arrangement (CVA) proposals tabled by Arcadia and its related companies.

The pensions watchdog has told Sir Philip that it will not support the plan unless he commits the additional £50m, according to insiders.

The backing of TPR, the Pension Protection Fund – which is responsible for casting the vote on behalf of Arcadia’s £750m unsecured pension deficit – and Arcadia’s pension trustees are therefore crucial to winning the votes.

Sir Philip’s empire is “highly likely, either immediately or after a short time period, to enter into insolvent administration or liquidation” if the CVA proposals are defeated, according to documents sent to creditors last week.

A source close to one of Arcadia’s biggest landlords said they had been informed that Arcadia would be placed into administration next Wednesday evening if the CVA fails.

If that were to take place, it would be the most stunning collapse in a sector littered with corporate carcasses during brutal trading conditions in recent years.

While big names such as Debenhams, House of Fraser, Maplin, Toys ‘R’ Us have all entered some form of insolvency or disappeared, the demise of a tycoon widely lauded as ‘the king of the high street’ would represent the most prominent retail collapse into insolvency for decades.

Arcadia’s collapse into administration would herald a break-up of the group, with significant interest likely to be registered in buying Topshop but a lesser appetite for a takeover of brands like Evans and Wallis.

Deloitte is understood to have been placed on standby to act as Arcadia’s administrator, according to creditors who have been briefed on the process.

Sources said there were daily discussions taking place between Sir Philip’s lawyers and The Pensions Regulator in an effort to resolve the impasse.

It was unclear on Friday whether the tycoon – who recently lost his billionaire status, according to The Sunday Times Rich List – was prepared to hand over the additional £50m being sought by TPR.

One insider said the £50m figure was subject to “a negotiation” and could end up with the two sides agreeing on a number “somewhere in the middle”.

When the CVA documents were published last week, TPR responded by saying it remained “in discussions with the company and the trustees to understand the impact of the CVA proposals on the scheme and to ensure the strongest possible outcome is achieved”.

“We note from the CVA announcement that the shareholder is prepared to put an additional £100m into the scheme over a number of years to bridge a shortfall in deficit recovery contributions.

“However, we do not consider the proposals are sufficient to ensure that members of the scheme are adequately protected.”

Sky News revealed earlier this year that Sir Philip was seeking to halve Arcadia’s £50m annual pension contributions as part of a wider plan to cut the company’s cost base.

Under the proposals outlined last week, nearly 50 stores will close with the loss of well over 500 jobs.

If approved, the CVAs would result in rents at nearly 200 shops being cut by between 30% and 70%.

A group of landlords, which would be handed a 20% stake in the company, are pushing for revisions to some of the proposals but are expected to vote in favour of the restructuring, according to property industry sources.

Sir Philip – whose wife, Lady Tina, is technically Arcadia’s owner – has also pledged another £50m to the company, which owns the Burton, Dorothy Perkins and Miss Selfridge brands.

That money would be used to support working capital, while another £50m of the tycoon’s fortune has already been used to pay down part of the group’s bank debt.

The tycoon, who recently paid $1 (76p) to buy back his private equity partner’s 25% stake in Topshop and Topman in April, has been remote from the negotiations about Arcadia’s future.

Ian Grabiner, the company’s chief executive, has been spearheading the talks, while Deloitte and an army of other professional advisers have been working on the CVA proposal.

Under its plans, a number of subsidiaries are being placed into administration, including its US holding company.

Oliver Morley, the PPF chief executive, said last week: “We are now reviewing the relevant Arcadia CVA so that on June 5 we can vote in the best interest of the schemes and the PPF.

“We will support the Pensions Regulator to achieve this, and want to reassure scheme members that we are here to protect them at this concerning time.”

The pensions standoff is not without risk for the regulator, which risks becoming embroiled in a bitter political fight if Arcadia goes bust and the outcome for nearly 10,000 pension scheme members is ultimately inferior to the proposal currently on the table from Sir Philip.

In 2017, he agreed to pay up to £363m to compensate BHS pensioners following a furious row over the department store chain’s collapse little more than a year after he sold it for £1 to Dominic Chappell.

The efforts to secure Arcadia’s future come after a miserable period for the tycoon, who has been embroiled in a storm over his behaviour towards Arcadia employees and his use of non-disclosure agreements to prevent former workers discussing their severance packages.

He has denied any unlawful wrongdoing.

Arcadia and The Pensions Regulator declined to comment on the £50m demand.

(c) Sky News 2019: Revealed: Arcadia’s fate hinges on £50m pension demand