Business and Trade Committee
Oral evidence: The collapse of Wilko, HC 316
Tuesday 28 November 2023
Ordered by the House of Commons to be published on 28 November 2023.
Members present: Liam Byrne (Chair); Douglas Chapman; Jonathan Gullis; Antony Higginbotham; Jane Hunt; Ian Lavery; Andy McDonald; Mark Pawsey; Sir Stephen Timms.
Work and Pensions Committee member present: Nigel Mills.
Questions 43-129
Witnesses
II: Victoria Venning, Partner, EY; Andrew Walton, UK Head of Audit, EY; Lisa Wilkinson, Former Chair, Wilko; Mark Jackson, Former CEO, Wilko.
Examination of witnesses
Witnesses: Victoria Venning, Andrew Walton, Lisa Wilkinson and Mark Jackson.
Q43 Chair: Welcome to this second panel of the Business and Trade Select Committee, looking at the collapse of Wilko and the lessons for policy reform at the Department for Business and Trade. Thank you very much indeed to all of you for joining us today. That is much appreciated. We are seeking to learn the lessons from the collapse of Wilko and what that means for the programme of reform at His Majesty’s Government. Ms Wilkinson, perhaps I could start with you. Could you tell the Committee: did your greed bankrupt Wilko?
Lisa Wilkinson: I do not believe so, no.
Q44 Chair: Do you want to tell us why Wilko collapsed?
Lisa Wilkinson: Would you like me to do that or Mark?
Chair: I would like your perspective first, please.
Lisa Wilkinson: In essence, Wilko failed because we ran out of cash. That is what caused the downfall in the end. There were a lot of contributory factors that led to that over quite a long period of time. Clearly, we had a strategy to deal with those factors that were hitting us, but Wilko went out of business before that strategy was fully implemented. There were a series of external factors and a series of internal factors. I am mindful that you will want me to keep my answers short, so I need to try to do that.
Externally, we are all familiar with the landscape. We had declining high streets and Wilko was very much a high street-based stores retailer with long leases and high rents that kept us on those high streets. We of course faced the cost of business rates. We faced Covid, like all businesses did. During Covid we stayed open. We did not furlough any team members. I like to think that we were supportive of team members who had high risk because of medical conditions they had. We also, relatively unusually, paid our landlords in full throughout Covid. The things we took advantage of were the delays in paying VAT, which we paid off, and the business rates concessions. Other than that, we stayed open during Covid and covered our costs. There is some debate, which Mark will bring into the picture, about whether we should have done that or not, but we did.
We are not a business with a history of debt. If you look at our accounts, which are publicly available at Companies House, we do not have a history of carrying debt. During 2022, we were trying to move from a revolving credit facility, which we did not use, to a more secured debt position. We were about to enter into secured lending arrangements with Macquarie when the 2022 mini-Budget happened. We were literally in the midst of that. At that point, the interest terms on that loan were hiked massively and that became infeasible. That was a contributor externally.
Financially, our revenues were falling faster than our cost base could be reduced, which was eroding cash, as you can see in the figures for 2022. We lost the confidence, sadly, of key allies. We lost the confidence of Lloyds Bank, which had been our bank for 90 years, and they pulled away from us in 2022. We lost the confidence of the credit assurers, who pulled away from us in autumn 2022. We got some amazing support from some of our goods for resale and goods not for resale suppliers, but we did not get support from enough of them to sustain us through that. We could not manage to obtain the further inward investment we needed, either by way of debt or equity, to continue to trade and implement our strategy.
Our customers—you can see this in the figures over time—have gradually reduced shopping with Wilko. Lots of people have their theories as to why. Some on my list, if you are interested, are that we failed to grow and scale our online business, the cost of living crisis clearly reduced our sales and we had big internal challenges around product availability. That was caused by many internal difficulties to do with things such as lorry driver shortage, distribution centre infrastructure changes, lack of credit assurance and low supplier confidence.
We had moved to a position where we had an unclear customer proposition—and I have heard some of the statements that people have made—as against the discounters. We are a value retailer, but our proposition was unclear against the discounters. We failed to satisfactorily address our category and product offer and move to something different and better. We had huge pressure on margin rate, spiralling costs and I think that it has been alluded to that Wilko was over-rented on the high street. We had weak processes and infrastructure. I am sure that there are more, but those are the ones in my mind.
Q45 Chair: That is a long list of failures and the failure of that strategy has now left the taxpayer on the hook for over £40 million of financial support for those made redundant. We have a pension fund deficit of over £50 million and creditors that, at best, are going to see 4p in the pound on the debts that Wilko owes to them. Do you want to take this moment to apologise to those workers who are facing Christmas without work?
Lisa Wilkinson: I am thankful to so many people for so many things that they have done to help Wilko, not least among them those fantastic team members that have always worked at Wilko and the amazing suppliers and advisers who have supported us. Of course, top of that list has to be the fantastic customers who shopped with us for over 90 years in our stores. I am devastated that we have let each and every one of those people down with the insolvency that Wilko has done. I do not know how to put into words how sad I am that we have let down all our customers, all our team members, our suppliers and our advisers. Genuinely, I do not know what you want me to say.
Q46 Chair: “Sorry” was the one word I was looking for and that I did not hear.
Lisa Wilkinson: You can have the word “sorry”. Of course, I am sorry. If you wish me to say the word “sorry”, I am.
Chair: I wanted to give you that opportunity.
Lisa Wilkinson: I thought that “devastated” covered it. I apologise. I was not trying to be clever. I am sorry that we are not there supporting all those people anymore.
Q47 Chair: It was a long list of problems that you identified, from the Prime Minister’s Budget through to the partners that you had, for example your financial partners. What were the mistakes that you made?
Lisa Wilkinson: “What would I do differently if I had the time again?” is a question I ask myself all the time. I would do differently the year that was 2022. We started out that year not as strong as we should have done, but strong. We had positive cash, positive EBITDA and decent trading sales. We had no debt position at all at the beginning of 2022. In each four-week period of 2022, by trading down on our numbers, we were eroding cash. The first thing I would like to do differently, if I could, is be more proactive on that declining sales that was dropping into cash through 2022.
The next two things are not a popularity vote, I am afraid. I wish that I had brought Mark in earlier. I think that he could have made a difference if we had brought him in earlier. I wish that I had taken the advice of PricewaterhouseCoopers earlier. Those are the three things that I wish I had done earlier.
Q48 Andy McDonald: The problems did not start in 2022, of course. PwC had already identified issues. There is something that came out in the previous session and I wanted to clear it up, if I could. The last set of accounts for the year to 29 January 2022 was signed off by EY in November 2022. If the business was not sustainable at that point, what was the conversation going on in that interim period opposite the sale of a major asset to try to improve the situation? Was there a conversation about trying to make the picture look a little bit better with the sale of a major asset?
Lisa Wilkinson: I am going to answer the question, but before I answer the question I need to say that I am not a financially qualified person. I do not come from a financial background. To get that question answered as I suspect you would like it answered, I would need either my CFO or member of my finance team to do it. The chair of my audit committee was also financially qualified. That does not mean that I am not going to answer it. I am going to answer it.
Q49 Andy McDonald: Can I check, Ms Wilkinson, that you are a family director of the company with the fiduciary duties that go with that?
Lisa Wilkinson: I am a family director of the company. I have the fiduciary duties. Of course, that is why I am going to answer the question, but I cannot answer it from that financially qualified perspective.
My understanding as a director was that two things had to be true for us to sign off our accounts for that year-end. One, we had to have sufficient cash and liquidity to ensure that we could continue to trade as a going concern. The second one was that we had to have reasonable, achievable and sensible financial trading numbers that we were predicting we were going to deliver through 2023. We were put under enormous pressure by our then auditors, EY, to prove both of those things: that we would have adequate cash and that our numbers were reasonable and achievable.
The adequate cash, as you have seen, because it is on record, was coming from either secured lending against our distribution centre in Worksop or, as it transpired, a sale and leaseback of Worksop. Secondly, it was coming through an ABL, asset-based lending, which we secured, ultimately, through Hilco. That was secured against many things, but principally against, from memory, stock and intellectual property, but there were other things too within that. On the one dynamic, we needed to prove to our auditors that we had sufficient cash.
The second side of it was that we had to prove that we had reasonable and achievable trading numbers that we were likely to hit as we went through the financial year, which is 2023. We ran more sensitised versions of those numbers than even I can remember to do a worst-case scenario, then an even worse-case scenario and then an even worse-case scenario.
Q50 Andy McDonald: Can I interrupt there, because we are up against time, to some degree? According to the Sunday Times, Wilko was advised in 2022 by restructuring advisors from Teneo to use a company voluntary arrangement to close some stores and renegotiate rents on others. How did you respond to that advice?
Lisa Wilkinson: I was not directly involved with Teneo. My understanding is that in early—
Andy McDonald: As a director—
Lisa Wilkinson: As a director, it was reported to me at holding board. That is absolutely right.
My understanding is that in early 2022 verbal discussions took place with Teneo about whether a company voluntary arrangement—a CVA—was an appropriate route for Wilko. At that time, I understand that my CEO and my property director were told that it was not because our financial position was not sufficiently bad to do a CVA.
By September 2022, we had a long report into the holding board. Within that long report, as part of the contingency planning if trading continued to deteriorate, a CVA was discussed. It was not proposed as a “do it right now” scenario. It was proposed that, if trading continued to deteriorate, it was a contingency plan.
Q51 Andy McDonald: You say it was not a “do it right now” scenario. Was it not the advice from Teneo to do it right now?
Lisa Wilkinson: No, it was not. In November they repeated the advice around a CVA, again as a contingency if trading continued to decline. The consensus was that we should do a stepped plan. Step one was to do the secured lending or the sale and leaseback. Step two was to do the ABL. Step three, to be planned in the first quarter of 2023, was to consider doing a CVA, with the suggestion that we would have an implementation date of April 2023 because that would release the most cash on to the balance sheet. My understanding is that we would have got a better business rates position if we had done it at the beginning of April. I do not know the detail of it, but that is my understanding.
That is what we did. During the first quarter of 2023, we did the planning for a CVA. At that point we did it with PricewaterhouseCoopers, not with Teneo. There was a subtle difference. In the original report, Teneo had believed that the CVA would be largely a pension scheme voted CVA because it had the pension deficit as a very high figure in its report. As it transpired, that was not accurate.
We were doing predominantly a landlord-voted CVA. That meant we had to do a much tighter cost-reduction programme in order to try to secure the votes of the landlords in favour of that CVA. That took us over the April date in doing that cost-cutting exercise before we could put the CVA position before the landlords.
This is the nub of it. Did we listen to the advice? Did we follow it? Yes, we listened to the advice. Yes, we followed it.
Q52 Andy McDonald: That is not everybody’s interpretation of those events. I will perhaps put this to you, Ms Wilkinson and Mr Jackson. The Sunday Times quoted a restructuring source as saying that Wilko failed due to “naivety, incompetence, a failure to listen to people who have done these things for a long time and just stubbornness—resulting in a complete car crash and the loss of a third-generation business which could have been saved”. Mr Jackson, how accurate is that?
Mark Jackson: If that is referring specifically to the CVA, it is inaccurate.
Q53 Andy McDonald: It is referring to the failure of the business.
Mark Jackson: I was appointed at Christmas 2022. I have to say that most of my time was spent on looking forward at what needed to be done at what pace.
Q54 Andy McDonald: You would have to look back to understand what had gone wrong. How accurate is that characterisation?
Mark Jackson: You have heard different conjecture this morning. I would call it conjecture. The reality is that at the end of January 2021 the balance sheet of the business was pretty well placed, despite views on discounting versus value retail being in the right or wrong place on the high street. All of those were issues and they impacted the business, but there was over £100 million of cash, over £100 million of P&L reserves.
In my view, the biggest contributory factors to cash outflow were the increased competition, global supply chain issues, cost increases and failing to act on cost reduction. Most importantly, I believe, with hindsight, that we should not have stayed open. I would have protected the business on the furlough scheme and on rents, like 90% of other retailers.
There was a warehouse management system implementation that was nothing short of a disaster, which led to a shortage of availability in store stock.
Q55 Chair: This is Project Optimus, is it?
Mark Jackson: Yes. Project Optimus was a wider project that included spending £60 million on bringing our warehouses up to scratch. You can quickly see the Covid impact of not furloughing. Yes, we stayed open and traded, but cash was going out the door.
The DC sale and leaseback became necessary, as did the ABL. The ABL gave us a window. When I came in, it was a sufficient window. It required a lot of things to be done quickly. We took £90 million of costs out on an annualised basis. We planned a very detailed CVA with CBRE, the same people Teneo would have used.
There was not a change in strategy around the CVA. There was the £90 million of cost out of the structure, and then there was £35 million to £40 million through a CVA. Most importantly, we had to get suppliers back on board. A large number of them had restricted credit or were on stop. If you read the press, most of the sales shortfall in the last two years was driven by poor availability. There was poor availability because we did not have the cash to pay the suppliers.
We had to go through the ABL, take all of the suppliers through the cost reduction programme, show the window and show that there was a planned CVA. That still required funding post the CVA. That turnaround plan could have been delivered.
The biggest single factor in it not being delivered was news of the CVA leaking into the press, which made suppliers that we had got back on board very nervous again. Availability started to fall and then it became a vicious circle.
Q56 Andy McDonald: Ms Wilkinson, do you recognise that characterisation? In addition, some informed observers felt that, with the cost of living crisis and shoppers looking for bargains, this should have been Wilko’s time to shine. That is how it has been described. Do you recognise that, in the characterisation of others?
Lisa Wilkinson: I recognise Mark’s characterisation. I am sorry. I have forgotten what your characterisation was in the first place.
Q57 Andy McDonald: It was simply that Wilko failed due to “naivety, incompetence, a failure to listen to people who have done these things for a long time and just stubbornness—resulting in a complete car crash and the loss of a third-generation business which could have been saved”. That is the charge that is put to you.
Lisa Wilkinson: I do not recognise that we did not listen. I recognise the devastation of losing a third-generation business. It is devastating. I do not know what you want me to say. I do believe Wilko could have been saved, but it was not.
Q58 Jonathan Gullis: Ms Wilkinson, I am just a bit baffled. You have talked about 2022 a lot. Of course, I totally accept that there were economic impacts external to the business that impacted it. In the first panel, Professor Shah pointed out that, in the audited accounts of 2018-19, the last sentence of the “going concern” section suggested that the financial viability of the business was in question. Why was that not acted upon? Why is it that all the blame is being put on 2022? I feel that there is a sleight of hand here. It is easy to point fingers at the Government; it is easy to talk about Covid; it is easy to talk about the cost of living. The reality is that you had the warning signs in that last sentence. Was it simply the case that you and the directors did not read the audit report?
Lisa Wilkinson: I do not know how to answer that question. We did read the audit report. We are taken through the audit report by our auditors in holding board meetings. Whichever auditors we have, we go through that and we always scrutinise it.
It is true that the trading position of Wilko in terms of turnover was weakening over the years. We always scrutinised and took steps to address everything we could. The trading performance was not strong, but we had relatively strong trading performance until we hit financial year 2022. In 2021, we were still taking £1.36 billion turnover; we had EBITDA of £48.3 billion; we had net assets of £118.4 million. We were still in a relatively good position by the end of 2021. It was during 2022 that the position declined.
Q59 Jonathan Gullis: The truth, though, is that the warning signs were there in 2018, but action was not taken until 2022. In essence there was a four-year period of inaction, in my opinion.
Earlier, Mr McDonald was raising the fact that you had been warned about some of the high street shops having renegotiated their leases. You said that the advice was not to do it now; it was just given to you as advice. If I ignore my partner when she tells me to put the rubbish out, when she tells me to put it out the second time, that means, “Do it now”. I am a bit confused about why, when the business has been given this bit of advice twice, this has not been taken as a bit of a hint, at the very least, that you need to do something.
Lisa Wilkinson: I am sorry if I gave you the impression we were not doing anything about the fact we were over-rented and that our stores were in the wrong places. Of course, we were. That was an active stream of work for as long as I can remember in reducing our lease obligations. I would have to bring the relevant head in to enable you to have the detail. I just do not have the detail on that today.
I am sorry. I thought you were referring to the more aggressive approach through the CVA mechanic, but, yes, we had been working for many years to reduce our rent bill, to reduce the length of our leases and to get our stores into the right places. It was an ongoing job of work.
Q60 Chair: Mr Jackson, was it your view that the Teneo advice was inaccurate?
Mark Jackson: We have to separate this out. Was the recommendation of a CVA inaccurate? No. A CVA would have put the business in a much better position, but a CVA is an insolvency process. It is an insolvency process that requires funding on the other side. Otherwise, you will not get through it.
Their analysis was incorrect. 75% of the people who vote, by value, have to vote in favour for it to go through. Their analysis of the voting had a pension scheme that could put it through on its own and no other creditors mattered. The reality is that that was not true. All landlords needed to be taken through and all suppliers did. The planning detail behind a successful CVA was not the same as what Teneo had proposed.
Q61 Chair: Does that mean that, in your judgment, it could not have been implemented?
Mark Jackson: It could have been implemented, but it could not have been implemented until we had funding and we were insolvent. It could not have been implemented when they recommended, which was the back end of 2022. It could not have been done at the time. It was a deferred recommendation. It was not a “do it now”. It was absolutely not. That is just impossible. You have to be insolvent to do a CVA. The business was not insolvent. It had a declining cash base. It had freehold property of £80 million in value. It would not have been possible until all of those plans had been worked through.
Q62 Chair: Was there a way, therefore, to pursue that reform?
Mark Jackson: I believe so. Again, all of this is with hindsight. We had a window, if we had been able to get the suppliers on board. With the detailed CVA plans, we went to at least 20 potential investors, both private equity and debt. We were looking at the full sale of the business. You had to get funding secured throughout the CVA process because suppliers will say, “Hang on. Am I going to get paid?” They want to know that you are going to get through this.
You then need funding on the other side. That funding required a detailed plan. We had funding agreed for the other side, but the funding up front was still required. We had an ABL agreed with Hilco. Hilco did not want to be in for the long term, so we had to get the two parties to work together. As time ran on, the lack of availability of stock in store made the position worse each day, but there was definitely a window where the turnaround could have been done.
The difference between the funding that we could raise and the funding that was required is quite a bit less than the cost to the taxpayer.
Q63 Chair: Why was that opportunity not seized, if there was a window of opportunity?
Mark Jackson: We could not get the funds to back it.
Q64 Chair: It was an external constraint rather than a decision of the business.
Mark Jackson: Yes, absolutely. It was pursued. I knocked down an awful lot of doors more than once. We had interested parties right up to the beginning of August who were really keen to save the business. I thought there was still a very good chance of doing so.
Q65 Chair: What was stopping these creditors?
Mark Jackson: Ultimately, the amount of security in the balance sheet was falling every day. The amount that the secured lenders were prepared to lend was also reducing.
Given the UK economic climate, particularly for retail, with future cost increases, the investment community was not overly keen. I could get about £15 million unsecured and I could get £40 million to £45 million of secured lending, bringing us to a total of around £60 million or maybe £65 million. The need was £75 million to £90 million.
Q66 Chair: You see our problem. Our problem is that in 2021 you had £108 million in cash on the balance sheet. You had a deterioration in trading conditions, but that affects every business on the high street. Other players seem to have been able to weather the storm, and you did not. We are trying to understand why you did not when others did, when you started with such a strong cash position.
Mark Jackson: I was not in the midst of the decision-making, but you can imagine. We were paying rents, which are £90 million a year; we were not furloughing people; we were spending £60 million on two warehouses; we had the impact of credit insurance being pulled; we were accelerating cash out to suppliers. This can happen quite quickly.
Q67 Chair: Those are all examples of management failure.
Mark Jackson: I was not there at the time, so I cannot comment on the decisions and the reasons why they were made.
Q68 Chair: Ms Wilkinson, you were there at the time. Why were those decisions taken?
Lisa Wilkinson: There were many decisions that Mark talked about. Which ones do you want me to talk about?
Q69 Chair: Let us go through all of them. Let us go through the furlough and the failure of Project Optimus. Let us start with those two.
Lisa Wilkinson: We took a decision to stay open. The history of Wilko is that it has always stayed open. It stayed open throughout World War II. It has always stayed open when challenges have happened. We were an essential retailer. We debated at great length as a board whether we should stay open. The decision we took was to stay open, not to furlough our team members, to support those who were medically vulnerable and to pay our landlords in full. That is the decision we took.
Q70 Chair: What about the warehouse project?
Lisa Wilkinson: We had two warehouses, DC1 and DC2. One is in Magor in Wales; one is in Worksop. There were two forms to the warehouse project. There was the warehouse management system implementation across both distribution centres and there was a re-lay of the racking and the layout of both distribution centres.
The decision to implement those was taken many years ago. There was a phased programme that started with Magor, which was the smaller of the two distribution centres. There was an implementation of the warehouse management system and a re-lay of racking, and then that moved on to distribution centre 1.
Clearly, it was done with the intention to improve the processes in our warehouse. We had out-of-date machinery. It was very manual. We were not as efficient as we could be. A decision was taken by the board collectively, as a capital investment, to do that work.
Q71 Chair: Ms Venning, what advice did you give to the business about the Teneo advice?
Victoria Venning: First, thank you to the Committee for inviting us here today to talk about our role as auditors of Wilko and indeed audit reform as well.
Chair: You are welcome.
Victoria Venning: We have listened quite carefully to the last panel and we welcome the opportunity to offer some corrections and to answer your questions.
Turning to your specific question, it is not our role as auditors to offer advice to the company. The company will make management decisions. They are involved in the day-to-day running of the business. Our role as auditors is to assess the status and the position of the business and to come up with an independent opinion as to whether the accounts, as presented by management and signed off by the directors, are indeed true and fair and provide users with an appropriate view in terms of the position the company is in.
Q72 Chair: At no stage did you give advice about whether to pursue the kinds of ideas that were in the Teneo proposal.
Victoria Venning: It was not appropriate for us to do that in our role. As auditors, we would not give advice on that. It is very important that we are independent.
Q73 Chair: Is that a no? Did you give advice on whether to pursue the Teneo proposal? It is yes or no.
Victoria Venning: It was not our role to do so.
Q74 Chair: Is that a no?
Victoria Venning: It is a no.
Q75 Chair: What advice did you give the business about the steps that it might need to take in order to remain a going concern, for example around the sale of the warehouse?
Victoria Venning: Again, it is not our position as auditors to offer advice to the business. It would be highly inappropriate for us to do so. We are an independent body that assesses the decisions made by management in terms of how they feed through into the accounts to be sure they are true and fair.
In terms of the assessment that we went through from a going concern perspective, it is very important for the Committee to understand—hopefully it is helpful for us to jump into this—what our opinion said in terms of our view on the position of the business. If you would not mind, I would like two minutes to read out the very specific piece in our opinion—
Chair: We have read it.
Victoria Venning: It really is quite important, Chair, for the whole Committee to understand the specific words we said in our opinion because it frames the rest of the discussion we will have here today.
Under the heading “material uncertainty related to going concern”, our opinion very clearly said, “At the date of approval of these financial statements the group has insufficient committed financing in place to withstand a severe but plausible downturn in trading activity throughout the going concern period to 28 January 2024 […] these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the group and company’s ability to continue as a going concern”.
To the point that Mr Shah raised in the first panel, this was not hidden away. This was not loose language. This was very clear language, in our audit opinion, that brought serious attention to the situation that the business found itself in and drew the attention of the users to the fact that there was a plausible scenario whereby the company could run out of cash, if sufficient financing was not raised.
Q76 Chair: Before you published that judgment, did you warn Wilko’s management that there was a risk they were not going to meet the going concern test?
Victoria Venning: Yes. As part of our audit, we do a lot of work in terms of challenging management around the forecasts that they prepare. It is important for the Committee to understand that the preparation of the forecasts is the management’s responsibility. Our role as auditors is to challenge those and to challenge all the assumptions within them.
Our audit for the January 2022 year-end started in May 2022. We obtained the forecasts that management had prepared and set about assessing whether the assumptions within them were appropriate. We do that in a number of ways. We do that by looking back at the historical accuracy of management’s forecasting. We look at what industry predictions are saying about the business and the sector. We use our own understanding of the business and indeed involve our internal retail specialists to help us with that.
When we did all of that work, we concluded that the forecasts that management had prepared at the time were optimistic and we challenged management to go away and revise those forecasts to take account of some of the challenges that we had raised in relation to the assumptions.
That process went on for a number of months. It was an iterative process. We continued to challenge management around the forecasting they had presented to us. We ended up with four different versions of the forecasts and found ourselves in September with a final position that had been put forward by management, which we still considered could be even more severe.
They went away diligently and prepared a final forecast for us, which in our view took account of the severe but plausible downside that could be experienced in the business. Only at that point were we prepared to sign our opinion to conclude that the financial statements that the directors had prepared were true and fair.
Q77 Chair: That last scenario entailed the sale of the warehouse.
Victoria Venning: The last scenario included the sale of the warehouse because that had happened in November before we signed off.
Q78 Chair: We are struggling to understand: we have a set of accounts that are bleeding cash pretty quickly at this stage, we have some of the challenges around getting further agreements with creditors on board, the accounts are basically being plugged with a one-off sale of a warehouse, and yet a going concern judgment is given.
Victoria Venning: I come back to the fact that the going concern assessment is a basis of preparation of accounts that is dictated within the accounting standards. Our audit opinion drew a serious warning flag to the users of the accounts around the very plausible risks in the business.
When we signed the accounts there was £58 million of cash in the business. Part of that was from the sale and leaseback, but equally part of the receipts from the sale and leaseback went to repay the RCF. We got to a place where we were comfortable that the audit opinion that we signed was the right opinion. We still stand by it today. It drew the users’ attention to the serious warning flag.
Q79 Chair: The business went bust. You signed off the accounts, and you stand by that judgment. That is an extraordinary conclusion.
Victoria Venning: We do not sign off the accounts. The directors sign off the accounts. We signed an audit opinion.
Q80 Chair: You signed it off as a going concern.
Victoria Venning: The directors sign the accounts as a going concern. We offer an opinion in relation to whether that set of accounts is true and fair.
In terms of the various other options that were available to us, which Professor Shah mentioned earlier, the other options we had in terms of signing our opinion could have entailed, firstly, a clean opinion with no reference to any warning signs in the business at all. It could have been a disclaimed opinion. We issue a disclaimed opinion if we do not have sufficient access to books and records to be able to make our judgment.
The third option would be an adverse opinion, which was the one that Professor Shah was alluding to. That opinion would only have been relevant in one of three situations: first, the company had already taken the decision to put the business into liquidation; secondly, if the directors had already taken the decision to cease trading the business; or, thirdly, if the directors had no realistic alternative other than to do so.
Those were the criteria we were assessing at the date of our sign-off. To have concluded with an adverse opinion at that point would have been a very extreme view. There were realistic alternatives for the business. You have heard today from management and from the previous panel that this was not inevitable. There were options that the business was pursuing. There were financing options. There were a number of cost-cutting initiatives that were already in train as well as growth opportunities.
For us to have given that opinion would have been the wrong answer. We stand by the opinion that we gave.
Q81 Chair: Ms Wilkinson, what advice did you receive from EY about the decisions that you needed to take in order to keep the business as a going concern?
Lisa Wilkinson: We did not take advice from EY. EY was our auditor, not our adviser. We took advice from Teneo and from PricewaterhouseCoopers in 2022-23.
Mark Jackson: Again, I would go back to Christmas 2022, when I joined. I am aware of the Teneo report. I am aware that PwC were appointed subsequent to Teneo. Therefore, yes, they were providing advice.
Lisa Wilkinson: We did do as we were advised and pursue a CVA in the first quarter of 2023. The implementation date was pushed back further than April because we needed to do the cost-cutting and secure the support of the landlords. That CVA advice was followed. It was not ignored. It was always intended that it was a contingency, if trading continued to deteriorate, with planning in the first quarter of 2023 and implementation from April. We did it later for the reasons I have given. I do not know how else to put it. It was not ignored.
Q82 Chair: You said earlier that you wish you had done it earlier.
Lisa Wilkinson: We could not have done the CVA earlier. I would like to have scrutinised those trading figures earlier.
Q83 Douglas Chapman: Just going back to Ms Venning’s point about the discussions you had with Wilko at the time, what was the tone of the discussions you had? You have laid out the number of steps that you have suggested and what the response was, but was there a feeling that what you were putting forward was being rejected? How difficult were the discussions you were having with the board of Wilko and the financial director at the time?
Victoria Venning: It is not unusual for directors to be optimistic about their business. Our role is to challenge those forecasts and to challenge the assumptions within them.
Q84 Douglas Chapman: How was that challenge responded to?
Victoria Venning: As I said, it started in May. The directors were open to the challenge. They were receptive and responsive. They went away and revised the forecast, as I said, a number of times in response to our challenges and, indeed, as the trading activity panned out over the course of the year. This went on for a number of months. They were entirely professional and responsive to our challenge.
Q85 Douglas Chapman: You were saying before that in your report you suggested the company was a going concern. Looking back now, does the thought go through your head—this is also for the director of audit as well—that you should have given a contrary opinion at that point, based on the information you have about how things have played out in the intervening period?
Victoria Venning: I have every sympathy for all the individuals at Wilko who have lost their jobs. Clearly, when there is a corporate collapse, it is time for reflection. We have thought long and hard since the news of Wilko’s collapse about whether we would have done anything differently. When we did that, we went back to all of the steps we did take and we looked at the challenge we posed to management and the robustness with which we did our work. The opinion that we got to was the right opinion. We stand by that opinion.
Q86 Douglas Chapman: Is there a review process within your company to allow you to do that in the audit team and to reflect on your audit fee and so on?
Andrew Walton: Yes, absolutely. One of the critical things we have introduced as a lesson learned from previous corporate failings is the need for broader consultation internally to make sure the partner signing the opinion feels both supported and challenged in the decisions they are making.
One of the critical things in this situation is to make the distinction between whether to sign an opinion with a material uncertainty, as we did, or to sign an adverse opinion, which would undoubtedly have resulted in the earlier wind-up of the company. The public interest is taken into account in that decision-making.
Q87 Douglas Chapman: Was that part of the discussions you had with Wilko at the time? Did you say, “We might have to give an adverse opinion here unless you take the action that is required to make the company solvent and sustainable in the long term”?
Victoria Venning: The discussion that was had at the time was around the understanding of these realistic alternatives other than for the company to collapse. They included the ongoing discussions they were in with lenders, the ongoing cost-cutting exercises they were involved in and the growth opportunities they were exploring.
As soon as we knew they were realistic opportunities and alternatives to collapse, it was very clear to us that an adverse opinion would have been the wrong answer.
Q88 Douglas Chapman: At the point at which you took over audit responsibilities from PwC, was anything red-flagged by the previous auditor to suggest that this was a company you needed to give special and careful consideration, given the previous history and the fact that the company’s market and footfall were on the down? Was it something you were concerned about as an auditor? Did you think you needed to put in a good team or a special measures team to make sure the company was protected or so that you could give the best advice possible?
Victoria Venning: There were no red flags raised to us by PwC when we took on the audit. We go through a very careful process of client acceptance, as you would expect. We assess the financial health of the business as well as the directors that are involved at the time. When we went through that, we did not have any concern around taking on Wilko as an audit client.
Q89 Ian Lavery: Ms Wilkinson, you mentioned before that, under your guidance, the company, Wilko, was a really friendly company. The workforce felt part of a family and everybody respected each other. I wonder whether the workforce think that now as a result of what has happened. At the same time as everybody was part of this huge welcoming and embracing family, the Wilkinson family had creamed off nearly £150 million in dividends over a period of 20 years. That includes £3.75 million in the year preceding the collapse.
That amount of profit has been made. The family has creamed it off. You then look at the 12,000 people who lost their jobs and the closing of 400-plus stores. They have had their livelihood taken away from them, and not only that, but the potential for financial security, in terms of the pension scheme, is in jeopardy as well.
Why on earth did this family-friendly company with 12,000 dedicated workers decide not to invest more in the company? Indeed, why did you not put any finances, any of the profits that you creamed off for your family, into the pension scheme? It has been suggested this morning that the pension scheme has an estimated deficit of £76 million on a buyout basis.
Lisa Wilkinson: There was a lot in there. Yes, the team members involved in Wilko did feel like one big family.
Q90 Ian Lavery: Do you think they feel like that now?
Lisa Wilkinson: As between themselves, I am sure they still do. I am sure I am no longer included in that family, but I am sure that, as between themselves, they still do. I am very proud of them for feeling that way. They are an amazing group of people. I have not worked in many businesses, but I have always been proud to be part of the team members in Wilko and will continue to thank them for everything they did in trying to save it.
The pension deficit that is visible to the directors is on a going concern basis. This was our understanding of the numbers. In financial year ending 2022, we understood the deficit to be £12.2 million. In financial year 2023, we understood the deficit to be £7.4 million. In both of those years we made pension contributions. In financial year 2022, we made a contribution of £8.4 million. In financial year 2023, we again made a contribution of £8.4 million. The directors’ belief at the time was that the group retirement benefit scheme was being funded with a view to it, in a short period of time, not having a deficit at all.
In addition to that, towards the tail end of 2022, we agreed that there would be a security for the group retirement benefit scheme over our second distribution centre in Magor. I believe that equated to about £20 million. If you were sitting in the boardroom of Wilko at that point, you would have believed that the deficit was £12.2 million and then £7.4 million—it was going down—and that you were paying two lots of £8.4 million plus a security of £20 million.
I am not suggesting that we were being smug about it. We were still focusing on the pension. Were we focusing on the pension and doing our best to ensure that that pension was covered? We were.
I do not understand myself—again, I apologise for not being finance—where the new pension deficit number comes from, but I believe it is valued on a different basis because we are no longer in business. It is valued on a discontinuance basis, which gives us a higher deficit. The figure that you talk about is not the figure I would have recognised when I was sitting in the boardroom and when we collectively were making decisions around pension contributions and the pension deficit. I can give you the pension deficit and the contributions for the nine-year period, if you would like them, but I am trying to keep it—
Q91 Chair: The point that Mr Lavery is really underlining is that you were taking dividends out of a business that was failing and had a pension deficit. How can that be justified?
Lisa Wilkinson: The easiest way I can explain the dividend is that, yes, there was a return made to shareholders by way of a dividend. My understanding is that is—
Q92 Chair: When you say “shareholders”, you mean you.
Lisa Wilkinson: I did not receive any dividends in my personal capacity. There were no dividends paid to individual people. I was not a shareholder in my personal capacity.
Q93 Chair: The dividends presumably went to the holding company.
Lisa Wilkinson: The dividends went to Amalgamated Holdings Wilkinson Ltd, which was put in place in 2017.
Q94 Chair: You are a shareholder in that.
Lisa Wilkinson: No. There is a series of family trusts that are shareholders in that. I am genuinely not fibbing when I say I did not hold a share in a personal capacity.
Amalgamated Holdings Wilkinson Ltd was put in place, contrary to what one of the earlier panel said, to give everybody visibility because sometimes trusts in this country are viewed as being opaque. We put that vehicle in not as a defence mechanism for the family but as a means of people being able to see what went out of the Wilko Group and into the family holding company and, if anything had been paid out of the family holding company, what came out. Nothing came out. We did not pay anything out in those years.
I can cover the dividend if you would like me to.
Q95 Ian Lavery: We have the information we need. I will just conclude with this question, Ms Wilkinson. We have heard evidence this morning from the GMB union that states quite clearly that you have not once offered an apology; you have not communicated with the staff; you have not acknowledged how the company has ended up in the position it is.
To the questioning of the Chair this morning, you offered an apology. Will you be offering a sincere apology to the 12,000 people who you have said twice this morning were the bedrock of your business? Why have you not apologised until this morning?
Lisa Wilkinson: I am not sure I am allowed to say this.
Chair: You are under parliamentary privilege. You can say what you like.
Lisa Wilkinson: Before Wilko went into administration—it might have been shortly after; I might have my timing wrong—I asked to do an announcement to all team members to thank them and to say all of the things you have said, but the advice from the directors and the administrators was that I should not do that.
Subsequently, I have of course responded to anybody who messaged me. I am not difficult to get hold of. I am a very private person who does not do interviews with the press, but in addition I did an interview with Oliver Shah at The Times in order to say thank you to my team members. He asked me what the one thing I wanted to get out was, and it was to thank my team members, customers and suppliers for everything they have done. That is the only reason I did that interview.
Yes, you can say it is not an appropriate newspaper for doing that in. I agree: it is not. It is not necessarily my team members’ or customers’ newspaper of choice, but it was the only means I had of getting a thank you out to my team members. Today, you—thank you—have given me another opportunity to thank my team members and my customers. I will be thanking my team members and my customers to my dying day. You will never find me saying anything else. I appreciate each and every one of them. I echo your words: they were the bedrock of Wilko.
Q96 Chair: Let me just wrap up this point with a question about the profitability between 2019 and 2022. The profits for that period of time were £11.6 million. The dividends that were paid out over that time were £7.5 million. That is two-thirds. Two-thirds of the profits of a company that was in trouble were paid out in dividends. How on earth can that be justified?
Lisa Wilkinson: I am sorry. Off the top of my head, I do not recognise that time period. I am not disputing it at all, but I do not recognise the time period. In the nine years since the demerger, the shareholders have had about £50 million of dividends, which is about £1.7 million per year. Each of those dividends would have followed the correct corporate governance. They would have been recommended by the CFO as prudent. They would have gone through the board of directors.
We would only have paid those dividends if we had either the right profit in year or reserved profits—I do not believe they fell below £100 million—and we had cash to do that. We also, over that nine-year period, invested £273 million in the business and £36 million in the pension scheme. I hear you when you say we took £50 million out, and we did.
Q97 Chair: Let me just go through it. In 2019, profit was £32.6 million. In 2020, it was £11.4 million; in 2021, it was £4.4 million; in 2022, it was £36.8 million. Over that period, the dividends were £1.5 million, £1.5 million, £2.25 million and £2.25 million. That is £11.6 million in profit and £7.5 million in dividends. 65% of the profit between 2019 and 2022 was paid out in dividends from a business that was in trouble. What is especially stark is that, as the business plunged into deeper trouble, the dividends went up. How can that be justified?
Lisa Wilkinson: My understanding is that the directors looked at the EBITDA figures, the reserves and the cash, and that was the dividend that was recommended.
Q98 Chair: It looks to us, just on the numbers, like you are burgling a failing business.
Lisa Wilkinson: I cannot answer the question any other way. That is my understanding of how dividend is arrived at.
Q99 Sir Stephen Timms: The Wilkinson family is among the wealthiest families in the country, thanks to the Wilko business over 90 years. As things stand, there is a £50 million hole in the Wilko pension fund. Should the family not be making good that hole so that at least the full pensions owed to people are paid?
Lisa Wilkinson: I do not recognise that statement that we are one of the wealthiest families in the country. I do not have assets to fill a £50 million hole in a pension scheme. I do not.
Q100 Sir Stephen Timms: You explained to us that the dividends that were paid went into the holding company rather than to individuals.
Lisa Wilkinson: Yes.
Q101 Sir Stephen Timms: What has happened? Are they still sitting in that holding company? What has become of them?
Lisa Wilkinson: The dividends from 2017 were paid into AHWL. They are sitting in AHWL. They are invested in start-up businesses, UK properties and a limited amount of stock market investment.
Q102 Sir Stephen Timms: Are there not resources there that can be used to fill the pension hole?
Lisa Wilkinson: No, there are not. They are tied up in other things. My understanding is, as a director of AHWL, I have legal obligations to act in the best interests of AHWL, having taken into account its stakeholders. Those do not include the group retirement benefit scheme.
It certainly would not add up to anything like that figure because, as we pointed out, since 2017 nothing like that money has come out of the business in order to do that. You can see it at Companies House. The assets that Amalgamated Holdings Wilkinson Ltd has are fully visible at Companies House. That is why we put the vehicle there in the first place: so that people could see.
Q103 Sir Stephen Timms: We are told that the family has received nearly £150 million in dividends from Wilko, admittedly over 20 years. There surely must be some resources there that could be applied to—
Lisa Wilkinson: Do I have time to cover the dividend? I cannot do a pithy one-liner on the dividend.
Q104 Chair: No, that is fine. We are quite interested in how so much money has come out, leaving a great big deficit, which now somehow cannot be filled because you have fiduciary duties to the company it was siphoned into.
Lisa Wilkinson: Since April 2014—there is a reason I am taking these dates; I am not trying to be tricky—which is since the remaining shareholders, the shareholders that have retained the business, have been in the business, the total dividends have been £15.6 million, which is on average of £1.7 million per annum.
The P&L reserves and assets were well over £100 million. We did not carry any debt. The cash at year-end has averaged £77 million over that period, with a low of £58 million and a high of £108 million. The pension contributions were £36.5 million. In terms of investment decisions, which are made prior to dividend decisions, as per the cashflow statements, we invested £273 million. That is the period from 2014.
The 2014 £63 million dividend in specie was what is called a demerger, which in my terms means that, instead of pushing businesses together, you are splitting them apart. That secured the exit of shareholders who wished to leave the business. The easiest way to think about it is that that £63 million was the consideration for their shares. The shareholders who wished to exit exited the business, taking the £63 million. The remaining shareholders, the ones who stayed behind, received no dividend that year. That is where the £63 million comes in.
My understanding is that prior to 2014—we are going back a period of time now—the dividends were higher, reflecting a more profitable business and a higher number of shareholders. Much of the funds in that period were used by the shareholders who were to remain in 2014 to do the initial buyout stages for the shareholders who were ultimately to leave in the demerger in 2014. That is how the figures break down.
Q105 Chair: Notwithstanding that buyout, that would still leave £100 million in dividends. Our understanding is that about £180 million has been removed. About £80 million of that was relating to the buyout that was recorded in the 2015 accounts. That would still leave about £100 million that has come out of the business between 2003 and 2022. That leaves us with a pension fund that is still short and £100 million in dividends that has come out. We are asking why the dividends that have come out cannot be used to fund the pension fund deficit.
Lisa Wilkinson: I hear you. I do not recognise those numbers.
Chair: They are from your accounts.
Lisa Wilkinson: Yes, but I do not recognise them. I am happy to share what they are. I am happy to go back, dig through and share what they are. I am not trying to be difficult about it.
The dividends that the remaining shareholders had out prior to the 2014 demerger date largely went into the early-stage transactions of buying out the shareholders who exited in 2014. The dividends that the remaining shareholders have are the dividends that have been paid since 2014, which over that period were £15.6 million.
Sir, I cannot answer the questions as to the others because we do not have it. The remaining shareholders do not have that money.
Q106 Chair: Where has it gone?
Lisa Wilkinson: It went on buying out the shareholders who have left.
Q107 Chair: There is £100 million in dividends that has gone into whatever the holding company is, over and above the £80 million that has gone into consolidating your control.
Lisa Wilkinson: No, there is not. The departure of the exiting shareholders took place in three transactions. It took place in a standard share buy-back, a buy-back and cancellation and then a demerger. It was in three phases over a series of years.
The dividends that predate 2014 were larger amounts. Those shareholders who remained used that money to buy the shares in the phase one and phase two transactions. They did not retain that money. They had it in the first place, but they did not retain that money because that money too went not strictly speaking back into Wilko but into other shareholders.
The money that the remaining shareholders have is only the money that came out after the demerger in 2014.
Q108 Chair: They have spent it.
Lisa Wilkinson: There are two chunks to that. I do not believe, sir, it has been spent. I believe it is either sitting invested in the trusts or it is sitting invested where you can see it in Amalgamated Holdings Wilkinson Ltd.
Q109 Sir Stephen Timms: Is there not some obligation on those shareholders who have departed, as you have explained, to contribute towards filling this very large hole at the moment in the pension fund? A large amount of their wealth was derived from the business. Is there not an obligation on them?
Lisa Wilkinson: I am conscious that I am not them and I cannot answer for them. I am not their spokesperson. That was a considerable time ago. They have not been shareholders of Wilko since 2014, for nine years. Since 2014, the business has traded successfully for quite a considerable period of time before we hit 2022 and the situation we find ourselves in today.
Q110 Jane Hunt: My questions are to both Lisa Wilkinson and Mark Jackson. We have covered quite a bit of what I was going to ask, but let me just state this. Some 12,000 people were made unemployed, many of whom worked for decades, including some of my own constituents. You had anchor stores with very high reputations throughout many of the towns in this country. Your rents were 40% above market rate. You were a cash company and your cash halved in 2021-22. You talked about Covid, but you were not doing so well in 2018 either.
The GMB says in 2014 the writing was on the wall, as you were moving away from being a cash retailer. In 2017, you set up Amalgamated Holdings Wilkinson Ltd. You talked about global supply chains being an issue, Mr Jackson. If I think about walking around Home Bargains, B&M or The Range, I think of colour and lots and lots of things on the shelves. For quite some time now, if you were to go around Wilko, you would see beige shelves, empty shelves. That is not something that has happened just in these last few years.
What could and should have been done differently in running Wilko, Ms Wilkinson? Mr Jackson, I do understand that you were only there since Christmas 2022. If you had been there since 2018, what would you have done in the meantime?
Lisa Wilkinson: What should we have done?
Jane Hunt: Yes, what should you have done differently in running the company?
Lisa Wilkinson: We should have had, exactly as you describe, higher stock availability on shelf. Half of Wilko’s sales were Wilko own-brand products, not branded products. We should have taken steps to reinvent our category and product offer so it was different and better. Kin—I believe it was referred to as W’Innovate earlier—was part of our strategy to do that, to reinvent our product offer so it was different and better.
We could have and did try to rework our store portfolio so that our stores were not over-rented and so they were in the right towns, in the right place in towns or on the right retail parks.
We should have gone larger on our digital offer. We should have built wilko.com faster and better. Contrary to what has been suggested, we were still a value retailer. We have always been a value retailer. Value sat at the heart of the Wilko offer. In Wilko world, value has three components to it. One is price, one is experience and one is quality. There was never a desire to erode the experience or the quality of our product or offer for our customers.
There was a great concentration on how you do that and still deliver product at great value to the customer. Could we have worked harder with that? I am sure more energy and effort should have gone into it.
There are a whole load of others that I could raise, but, if you are asking me to go back in time and say what was super-important, I think those things were super-important.
Q111 Jane Hunt: Mr Jackson, do you agree? If so, what could have been done?
Mark Jackson: Hindsight is always brilliant. I just want to go back to 2018-19, which keeps being brought up as the year when everything started to go wrong. It is my understanding—I caveat this by saying that I may be wrong—that this was a disastrous year because of a load of foreign exchange derivatives, nothing to do with underlying trading. A significant restructure was required to recover the business from that, which was the process it went through. I go back to what I said earlier. At the end of January 2021 the business was in decent shape.
Q112 Jane Hunt: It was flying.
Mark Jackson: I am dismissive of everyone’s comments on what the strategy should have been in 2017, 2018 and 2019.
Q113 Jane Hunt: It was not Covid and it was not global supply, because it was flying.
Mark Jackson: I am talking about the decision to stay open, not furlough and pay rents. That was a big drain of cash. In the earlier Covid periods, that was fine. There was the £60 million of warehouse spend. What would I have done differently? Who knows? The second I went in, I accepted that, with the trading environment that existed and the availability, cost out was the first action. I took £90 million of costs out on an annualised basis. Property was still over-rented and I kicked off detailed planning on CVA.
Q114 Jane Hunt: Were you shocked when you arrived?
Mark Jackson: I knew what I was coming into, so I came in knowing that the business was in what I will call distress and that there was a window of opportunity to turn that around. I still think that it was a decent opportunity. A number of things went against us. I still think that this business should exist and somebody should have invested in it.
Q115 Jane Hunt: You just ran out of time. Is that what you think?
Mark Jackson: Sufficient liquidity to get suppliers back on board, to get the stock on the shelves, would have given us a bigger window. It is very investable. The management team, which was a new management team, went around to 20 private equity type of investors, as well as debt providers, and we got very close.
Q116 Chair: What was the point about the forex derivatives, please?
Mark Jackson: That is when there was a big loss in 2018-19, which was referred to—I have to say that it is conjecture—as the start of Wilko’s problems. It bought all of its Far East products in US dollars. It took out forward rate contracts to fix the price it was buying at and it made an enormous mistake. There was, I believe, a loss in the region of £40 million on the FX derivatives.
Lisa Wilkinson: There was in that year, yes. I cannot give you the full detail on it. I am sorry. I could outside here, but I would have to remind myself. Yes, that was the year of the FX issues.
Q117 Douglas Chapman: I have one question, Mr Jackson. You have mentioned a couple of times about the lack of action taken over furlough and that the company could have decided to take that as an option. Ms Wilkinson, you said that under no circumstances would you have allowed that to have happened or stores to close during that period.
Lisa Wilkinson: It was not under no circumstances. We took a decision not to.
Q118 Douglas Chapman: What kind of advice did you take at that time from your accountants and financial advisers? Looking at your least profitable stores, for example, or most problematic stores, if furlough had been committed to at that point, what sort of information did you have that allowed you to come to that decision based on the finances?
Lisa Wilkinson: I would need a CFO here to remind me of what the modelling was that we did. We did a load of modelling around what would happen if we did or did not. In the end, a decision was taken by the board to remain open. It was felt to be the right thing for customers and team members. It was not a unanimous decision. There were directors who had to disagree and commit. It was by no means an easy or ill-thought-through decision. There was a lot of discussion around it.
Q119 Douglas Chapman: Do you remember a figure that was bandied around at the time of how much?
Lisa Wilkinson: I cannot. We were largely in uncharted territory, remember, on the furloughing and Covid.
Q120 Douglas Chapman: A lot of companies were in the same territory.
Lisa Wilkinson: Yes, everybody was.
Douglas Chapman: They made what might be seen as the right call.
Q121 Nigel Mills: Ms Wilkinson, I want to go back to the questions about your Amalgamated Holdings Wilkinson Limited. On the last balance sheet that I could see, it had £16 million of net assets, of which £9 million were listed investments. You said that there was some stakeholder interest that prevented you offering that up as compensation for those who have lost in the administration. Which stakeholders were those?
Lisa Wilkinson: My understanding is, as a director of AHWL, myself and my co-director have a duty to act bona fide in the best interest of that company. That is my understanding.
Q122 Nigel Mills: Usually you have to act in the interests of your creditors or shareholders, which are you, and there were not many creditors of that company. Were you never tempted, when the crisis hit and you had £9 million of listed investments, to realise them and tip them in the company and try to save it?
Lisa Wilkinson: We had that debate, yes. Was there anything that we could or should do to invest in Wilko? We did not have sufficient funds to make a difference to Wilko.
Q123 Nigel Mills: Out of interest, how much is sitting in the family trust? Is that tens of millions?
Lisa Wilkinson: No. It is a small number of properties. If you remember, in 2017 there was a whole load of adverse publicity about not being able to have visibility of private limited companies’ shareholders’ assets. Our response to that was to put in a vehicle that gave visibility. Insofar as we could, we got all of the assets from the trust into the limited company, so that everybody could see it. The ones that are difficult to get into the limited company so you can see them are property assets, because of course that incurs stamp duty, etc to move them across.
Q124 Nigel Mills: They are not worth tens of millions.
Lisa Wilkinson: They are not worth tens of millions, no. I am going to say three, but I could be wrong. I would have to check. They are not inconsiderable funds, but they are not considerable in the context of what we are talking about here. The intention was to put them into a place where they could be seen, so that we were not accused of being opaque as a family.
Q125 Nigel Mills: Mr Walton, you have not had much chance to say much. Have you reviewed Ms Venning’s audit file and are you happy that everything met EY standards and you would have done nothing differently yourself?
Andrew Walton: We stand by the opinion that we signed, yes.
Q126 Sir Stephen Timms: You may well have heard on the radio this morning, as I did, Doug Putman talking about his efforts to buy the business. He says that he thought he had got very close to a deal and at the end it failed because everyone just got a little bit greedy. What is your understanding of what went wrong there?
Mark Jackson: Mr Putman was one of a minimum of 20 conversations that were going on. He was at the 11th hour, and we heard from the insolvency expert earlier on. He actually came in after the business had gone into admin. I am fairly sure that what he means by everybody being a little bit greedy is about the creditors that were owed money at the point of admin. If a newco was to buy the business out of administration, those creditors, SAP, who kept your IT infrastructure going, would want paying what they were owed from the old company. That is what he was referring to as greed, in my view. He wanted to pick it up for not very much and not pay people who were the creditors who were owed money.
Q127 Sir Stephen Timms: Was he the one who got closest to doing a deal?
Mark Jackson: I do not think that he was. He was one of a number but it became complicated because of needing funding pre-CVA and post-CVA. We always had bilateral conversations going on with ABL lenders and equity investors. There were 20, and different combinations of them would have had the same conversation.
Q128 Jane Hunt: Mr Walton, we have in your brief that you are the EY UK head of audit and most notably in the consumer product sector, so I would have thought that you have great experience in one of the big four. In 2019, EY was called before our predecessor Committee to explain its role in the failure of Thomas Cook. Since then, serious questions have been raised about the quality of your audits of London Capital & Finance and NMC Health. Why does this keep happening? Where is the public interest and should the big four be broken up?
Andrew Walton: There are a few questions there. Let me try to take them in turn. We take all of the outcomes of those previous failings, or corporate collapses, I should say, very seriously. The important thing is to try to learn from those mistakes. If we look at the specific work around going concern, which is the most pertinent point here, since that time we have introduced new training and guidance for all of our people. We have invested in new external data sources to make sure that we can challenge management. We have encouraged the use of specialists, as Victoria did in this situation, to make sure that the forecasts that are being produced by management are subject to sufficient scrutiny, plus the independent consultation requirements I talked about before. All those procedures have been introduced to improve the audit quality and the reliability of the opinions that we provide.
In terms of public interest, since the firms voluntarily separated operationally, and that process started back in 2020, the issue of public interest is front and centre. That means having a separate ring-fenced business, having independent governance that holds me and the rest of EY audit to account, removing any of the financial subsidies that may have existed between the non-audit side of the business and the audit side of the business and making sure that there is adequate investment in audit quality. Public interest is very much front and centre of our culture.
Q129 Jane Hunt: Why does it keep happening?
Andrew Walton: I would respectfully put into context the number of cases that you quoted versus the volume of activity that we undertake each year. We sign over 4,000 audit opinions each year. Some of those instances you talk about go back to 2018, so we have signed 20,000 audits in that time.
Jane Hunt: That is understood. There are some big cheeses, including Wilko.
Chair: I am keen to get on to the Minister, so let me wrap this session up. This has been a sorry story that we have heard today. We have had you, Ms Wilkinson, admit to a number of significant management mistakes around stock, range and furlough. We have heard about a £60 million warehouse modernisation that went wrong, a £40 million loss on financial derivatives and a process of restructuring rents that did not go through. Despite those problems, you cannot explain why dividends went up. We have money sloshing around in trusts that somehow cannot be used to refund a pension scheme. We have accountants who are prepared to stand by the judgments that they made. We have at least had an apology, but I think we have a number of questions to now put to Ministers. Thank you very much indeed for your evidence today.