Arcadia’s trail of tears as customers get hit alongside employees and pension scheme members

Sir Philip Green’s Arcadia group has left a trail of tears. It’s become “exhibit A” for all those who would argue that the Anglo Saxon form of free market capitalism isn’t always what it’s cracked up to be.

Its tumble into administration means pension scheme members, workers, and an awful lot of customers have been kicked in a painful place. They’ll probably feel their wounds every time a news article emerges featuring pictures of the controlling family and their grotesquely ostentatious yacht.

In relative terms, the customers haven’t been hurt as badly as the other two groups. But that won’t serve to diminish the anger felt by those who hold gift cards or vouchers issued by the group.

These always, but always, cause trouble when a retailer goes pop. People really shouldn’t buy them but they do because, well, if they don’t know what the recipient of their intended gift wants, they often feel that one of these represents a better option than cash.

Trouble is the gift card holder risks losing their gift if the retailer is struggling and they don’t cash in before the administrators are called in. At that point they are simply added to the list of unsecured creditors and they’ll be counted as lucky if they get pennies on the pound sometime down the line.

If a new owner comes along, or even if the old owner buys back the business shorn of its debt, as often happens with the pre-pack administrations much favoured by the retail trade, they are still legally entitled to nothing

In practice, as Sports Direct found out when it bought House of Fraser out of administration, it makes sense for a new owner to play nice and let gift card holders have their goods. The nasty smell from the negative PR generated if they don’t can linger for a long time, sullying the name of the business, damaging its reputation with customers and reducing its chances of recovery.

The administrators at Arcadia have, however, come up with something new: with the business still currently trading they’ve offered gift card holders half of what they thought they were getting. This leaves them with a Hobson’s choice. Accept less and cut their losses or hold on and hope that a new owner is willing to honour gift cards as a “goodwill gesture” when there might not be a new owner.

Anyone interested in taking advantage of the sales being run by the company’s various brands (Topshop, Topman, Wallis, Dorothy Perkins, Burton, Miss Selfridge, Evans all have them on) online would be best advised to use a credit card, which can offer some level of protection in the event that their goods don’t get delivered.

Analysts feel that parts of the business may generate some interest but given the economic climate, and the state of the retail industry, there are no guarantees that this won’t all end up like Debenhams just has.

Pity the poor workers if that’s the case. They have a lot more to lose than a frock or a shirt, a jumper or a jacket. The Greens could surely have done more to save the business. 

A battle is also looming over the deficit laden pension fund. A final £50m is due from Tina Green, the named owner of the business, through a previous settlement but it’s still heavily under water. As things stand, the Pension Protection Fund (PPF) looks set to be called on to assess its position.

The PPF ensures people who’ve paid into schemes in good faith get 90 per cent of what they were promised if they are yet to retire. Retirees get the full whack but may lose some protection against inflation. There’s also cap at £41,400; £37,260 after the 90 per cent rule kicks in.

Other companies’ premiums will fill any gap between the scheme’s assets and the cost of providing the reduced benefits offered by the PPF.  

Pressure on the Greens to ensure this isn’t necessary is fierce and mounting. While Sir Philip’s reputation as a retail guru is in tatters, it might help restore some of his public standing if he succumbs to it. I wouldn’t bank on that happening. We’re talking about more than £300m so the pressure will probably be fiercely resisted.

It might ultimately end in court as well as in tears. There have been far too many of those already shed over this particular company.