Billionaire Philip Green’s Bankrupt Arcadia Empire Facing $2.4 Billion In Claims As $500 Million Topshop Flagship Store Nears Sale

The long, bleak bankruptcy process of Sir Philip Green’s once mighty Arcadia retail empire is nearing its end.

With a deadline set for November and bidding for his former flagship store–the group’s only notable unsold asset–entering its final stage, clarity is emerging about the size of Arcadia’s pensions deficit, and how much is likely to be paid out to Arcadia’s creditors, whose claims total $2.4 billion.

One of the key unanswered questions in the process concerns Topshop’s flagship store on Oxford Street in London. With a reported price tag of around $579 million (£420 million), the asset sale would have marked a significant windfall for those overseeing the bankruptcy, except the store’s $425 million mortgage, owed to U.S. private equity firm Apollo Management International, is secured and therefore must be repaid before any other funds are distributed. 

However, clarity is just weeks away. A source with knowledge of the bidding process told Forbes that the second round of bids for the property had arrived and they are currently being considered. In July, Apollo’s President & CEO for commercial real estate finance Stuart Rothstein said during an investor call in July that there were “multiple credible offers” on the table for an amount “in excess” of the $425 million owed.

The sale of the iconic Topshop building marks the beginning of the end for an insolvency process that began 10 months ago for a business that made the fortune and reputation of Sir Philip Green, one of the most controversial billionaires in British business today.

Skinning The Arcadia Cat

In November 2020, it was announced that Philip Green’s “zombie” empire of 400 stores and 13,000 employees, as described by one retail consultant before its collapse, had finally buckled under debt of over $1 billion at the height of a global pandemic.

Since then Arcadia’s administrator’s have sold off more than ​​$820 million of assets to help cover the debt, including the sale of famous brands like Topshop, Top Man, Miss Selfridge and HIIT to competing retailer ASOS in February; the sale of the Dorothy Perkins, Burton and Wallis brands to competing retailer Boohoo, also in February; and the sale of Evans to City Chic in December 2020. In April, Green’s team secured $1.7 million (£1.28 million) from a fire sale of office furniture and I.T. equipment.

However, the latest progress report published by bankruptcy administrator Teneo still makes for grim reading for many of those owed millions by Philip Green’s failed empire. In the clearest sign yet that Green could yet be embroiled in another public (and political) pension debacle—as he was in 2016, following the collapse of department store BHS—Arcadia’s bankruptcy administrators admit that “[t]he remaining unsecured element of the Pension Trust debt will not be paid in full, dividends will be in line with those paid to other unsecured creditors.”

At the part of the process last November, it was revealed that Arcadia owed over $700 million to the pot of retirement savings for Arcadia’s former workers. While nearly all of Arcadia’s $255 million (£185 million) in secured pension debt has been repaid, around $452 million (£327.6 million) is not secured and will be repaid as part of Arcadia’s unsecured debt through a dividend at the end of the process. How much will that dividend be? Around 10% of the money owed, administrators estimate: “We anticipate that sufficient funds will be released to enable a distribution to be made to unsecured creditors of c.10p in the £, based on total expected claims of c.£1.8 billion,” Teneo said in their latest progress report.

Teneo would not comment or offer guidance on the potential size of the pension deficit or offer specifics on how the money raised will be allocated. 

The issue could again provoke the ire of U.K. politicians, who voted to strip the tycoon of his knighthood in 2016, after selling BHS for £1 in 2015, the department store promptly collapsed the following year without clearing the chain’s pension deficit. After a public outcry Green was forced to pay $461 million from his own pocket to settle the debt.

In September 2019, Green’s political nemesis, former Labour MP Frank Field told Forbes that Green should use his own money to clear the new $700 million deficit at Arcadia, the actual size of which was not known until the bankruptcy. “The truth is, he’s a billionaire on the basis of these companies,” Field said, “and these company’s pensioners have the right to some of his billions.”

Forbes estimates Philip & Cristina Green to be  worth  $2.4 billion—largely built on a $1.7 billion dividend from Arcadia, which they paid themselves in 2005. At the time, Sir Philip told The Guardian that the dividend stemmed from a seven and a half year loan to Arcadia, and was “not rinky-dinky funny money.”

With Green’s career in retail now likely at an end, Brian Burke, managing director at business advisory firm Quantuma, says that Arcadia failed because it was too big to succeed. “In hindsight, the company was too large to move swiftly to react to its increasingly nimble competitors.” However, he adds, for all the bad headlines, “[Green] should be remembered as the man who changed the whole [retail] model and set us on the path to where we are today.”

The Tycoon Herald