Company ... BHS
90 year old chain store collapses

The 10 questions Dominic Chappell must answer over the BHS collapse

Burgess COMMENTARY

Peter Burgess

The 10 questions Dominic Chappell must answer over the BHS collapse

The investor who bought the retail chain from Sir Philip Green faces MPs this week about its failure. These are the most pressing issues that require answers

The BHS branch on Oxford Street in London last week. Photograph: Martin Godwin for the Observer

Dominic Chappell, one-time racing driver and the owner of BHS before it collapsed into administration, will be questioned by MPs this week about his role in the demise of the 88-year-old department store chain. Chappell faces a bruising session with MPs, likely to focus on how he came to own BHS and the money his consortium, Retail Acquisitions, took out of the business.

The Observer has drawn up a list of key questions that MPs should ask Chappell – who has been declared bankrupt three times – to shed more light on the collapse of BHS.

How long have you known Sir Philip Green and how were you introduced to him? This is an obvious place to start for MPs on the work and pensions committee and the business, innovation and skills committee. How did Chappell, with no retail experience and a very chequered financial history, cross paths with one of Britain’s highest profile business leaders? It is understood that Chappell was introduced to Green through Paul Sutton, a convicted fraudster who was working on his own deal to buy BHS. It will be interesting to hear Chappell confirm the circumstances in which he met Green because it will highlight how much the billionaire knew about his background.

Has Retail Acquisitions ever paid any monies to – or for the benefit of – Paul Sutton?

After a dossier outlining Sutton’s controversial history was sent to Green, the billionaire demanded written reassurance that Sutton had nothing to do with Chappell’s takeover of BHS. Chappell has claimed that he cut ties with Sutton, but Retail Acquisitions lent money to a man connected to Sutton and a log of negotiations between Green’s company Arcadia and Chappell in the run-up to the sale of BHS show that the billionaire was concerned that Sutton was still involved. MPs need to get to the bottom of the current state of the relationship between Sutton and Chappell, and this question is key to understanding whether the fraudster was in any way connected to Retail Acquisitions.

Did you ever use your work at Olivia Petroleum – or the balance sheet of Olivia Investments – as a way of enhancing your credentials with BHS, your advisers or potential funders?

Chappell has said Olivia Investments, his family’s holding company in Gibraltar, enjoyed a £5m “bonanza” that helped him to fund the rescue deal of BHS and demonstrated his track record as a businessman. However, a Guardian analysis of Olivia’s publicly filed accounts shows that £5m was an accounting estimate, and not the cash payment he had previously claimed.

How much of your own money did you put into BHS? Where did this money come from?

Chappell claims that Retail Acquisitions pumped £15m into BHS. However, £5m of this came from a loan secured against BHS’s assets. If Chappell’s £5m “bonanza” from Olivia was not cash, then MPs should push for information about the source of the remaining £10m.

Dominic Chappell photographed in Marbella in 2011. Photograph: GTS/Solarpix.com

How do you know the Dellal family of property investors? Did Green know of your connection? Did you agree to loans and property deals with them because they provided you with £35m?

Allied Commercial Exporters (Ace), which is controlled by father and son Guy and Alexander Dellal, provided £35m to Chappell, allowing him to demonstrate to Arcadia he was a credible businessman. Ace then bought a BHS office building next to its headquarters, called North West House, and sold it for a profit just weeks later. Ace also lent to BHS at such a fierce interest rate that it was known by the retailer’s management as the “Wonga” loan. These transactions made millions of pounds for Ace. MPs must try to establish whether the property deals and loans were connected to Ace putting up the £35m. Ace says they were not and that all the agreements were made on commercial terms. It is understood that Chappell knew the Dellals, but how? And why did they decide to get involved with BHS?

How much of the proceeds from property sales – including North West House and BHS’s main warehouse premises in the Midlands – were reinvested into the business, and how much went into Chappell’s Retail Acquisitions consortium?

This is a simple question, but will Chappell be able to provide a simple answer? We already know that £5m of the £15m raised by selling BHS’s warehouse was used to pay off a loan that Retail Acquisitions had taken out with Ace, and that Retail Acquisitions initially took more than £1m from the sale of shops on Oxford Street in London and in Sunderland.

How did BHS decide how much to pay Retail Acquisitions in salaries and management fees? How much did you personally make?

The Guardian reported in April that more than £25m was paid from BHS to Retail Acquisitions. This included £2.8m in management fees, £2.1m in salaries and wages, £11m in legal and professional fees and £10m in interest payments. Retail Acquisitions has said that salaries and management fees were independently benchmarked against other retailers. Chappell should provide details about which companies the fees were benchmarked against, the terms of the management services agreement, who approved this, and how much he was paid.

How often did you speak to Green during your ownership of BHS?

Sources close to Arcadia and BHS claim Chappell was in regular contract with Green during the 13-month period that Retail Acquisitions owned the business. Arcadia was a major creditor of BHS, and Arcadia brands including Wallis and Dorothy Perkins had concessions in its department stores, so such talks are understandable to a degree. However, what was the nature of their conversations?

Why did Retail Acquisitions lend money against your father’s house? Why did you move £1.5m to BHS Sweden in the days leading up to BHS’s collapse?

These two transactions do not appear to be connected to the day-to-day running of BHS but may show how Retail Acquisitions managed the business. Chappell has said a £1.5m loan was paid to a property company connected to his father and used to pay off the mortgage on the older man’s house. Land Registry documents show that a house in Sunbury-on-Thames was bought last July by a company called JDM Island Properties for £850,000, with Retail Acquisitions named as the lender. Chappell also transferred £1.5m to an entity called BHS Sweden, which is not connected to the British BHS, following a board meeting on 18 April that concluded that BHS needed emergency funding or would have to call in administrators. BHS management asked Chappell to repay the cash, but he paid it back £50,000 short, saying this represented the cost of transferring the money into Swedish kronor and back again.

Will Retail Acquisitions pay BHS the money it owes?

Chappell’s company still owes around £6m to BHS after it took an £8.4m loan out of the business. Administrators are working on recovering the money. Given that 11,000 workers are losing their jobs and the company has a £571m pension deficit, MPs should push Chappell about its repayment.