What you can get away with in business in a greedy, unregulated system

“Palmer & Harvey paid out £70m since 2008 despite ongoing losses.

UK’s biggest tobacco distributor called in administrators and ceased deliveries on Tuesday, making 2,500 people redundant.

Palmer & Harvey directors, former directors and other shareholders extracted about £70m in cash from the grocery wholesaler over the past nine years despite ongoing losses.

The company, where 2,500 people were made redundant earlier this week and a further 900 jobs are at risk, had been owned by dozens of private individuals via a complex web of equity and loans. The company supplied 90,000 stores including 50,000 independents that are now struggling to secure stocks of tobacco and groceries at one of the busiest times of the year.

The UK’s biggest tobacco distributor called in administrators and ceased deliveries on Tuesday after hitting “challenging trading conditions” while efforts to restructure the heavily indebted business were unsuccessful.

P&H was bought by its management team in 2008 in a deal that valued the company at £345m. The deal was largely funded by debt.

P&H (2008), the wholesaler’s parent company, has paid out more than £8m a year in dividends since 2009 to its shareholders despite making losses of about £10m a year or more in all but one year, 2014.

The company’s net debt hit £48.6m in April 2016 and has been above £29m every year since 2011.

Some former managers, including the former chairmen Christopher Adams and Christopher Etherington, hold special preference shares, according to the latest list of shareholders filed at Companies House. These “B preference” shares pay out a fixed dividend twice a year.

Etherington, who stepped down as chairman earlier this year, and his wife were entitled to an estimated £300,000 in dividends last year and Adams £941,000. Half of this payment was deferred under an agreement with shareholders which pledged that it could be repaid if and when the B preference shares were ultimately redeemed.

Etherington and his wife have together held the same number of these B shares since the takeover, entitling them to about £2.5m in dividends since 2009.

In 2009, Etherington also held another form of preference share, the “A preference”, that entitled him to an annual dividend. The latest annual report indicates he no longer owns those shares. He was able to redeem them for £1 each or £500,000, before dividends owed.

Accounts for Palmer & Harvey McLane (Holdings), another parent company of P&H, also show that Etherington received a £3.44m interest-free loan from the company’s employee benefit trust with which to fund his stake in the company. This was repayable on the sale of any shares held by him.

Only a handful of shareholders in P&H (2008), most of whom are former and current staff, retained their A preference shares at the time of the last Companies House filing. But their rights to redeem the shares were protected at the time of the 2008 buyout with ring-fenced cash of £42m held in a separate company, Buildtrue, in April 2016. That company is not part of the administration process and it is understood that the majority of A preference shareholders have cashed out in the past year, receiving funds from Buildtrue.

Administrators at PricewaterhouseCoopers declined to comment.”