Phones 4U collapse: guess who profited - hedge funds or taxpayers?

It seemed bad enough that a popular retailer could be allowed to collapse simply because its suppliers suddenly decided to pull the plug. Now we know who got their money back – and who didn't

‘Missing our deals will haunt you’ – Phones 4U’s TV ad came back to haunt it

The increasingly complex world of the failed mobile retailer Phones 4U was revealed this week as administrators provided an update on the most recent high-profile collapse in one of the high street’s more bizarre circumstances.

The complex report from the administrator PwC detailed a giant web of companies, woven via the tax haven of Jersey; questionable loans by company directors leaving a myriad of unanswered questions; and news that the high street remains littered with empty stores.

And as seems common with all administrations, the banks, owed £20m, got their money back in full and hedge funds, owed £430m, will have up to 24 per cent returned; the taxman will get nothing of the £78m owed.

But first it is worth remembering how Phones 4U and its 563 stores went down.

It did not go bust because customers failed to snap up mobile phones at record pace. Rather, it was forced to close as, one by one, the big mobile networks started to withdraw their services from the retailer, leaving it with nothing to sell.

Overnight, stores were shut, staff were told to stay at home and unsold iPhone 6s started winding their way back to Apple as the owner, BC Partners, realised its dream of a magnificent stock market listing was about as likely as a phone signal in a tunnel.

And so began a war of words, with poor Phones 4U bosses cursing the evil phone companies of Vodafone and EE for trying to kill off one of the few remaining independent mobile phone retailers.

They claimed these greedy tax avoiders wanted to see the company go bust so they could jack up prices and leave consumers with even less choice.

On the other side, the phone companies were spinning a different message of a business that had no place in the 21st century, with Phones 4U bosses making increasingly irrational demands such as upfront payments for phone contracts, and bigger commissions on sales – at a time when networks were pushing hard to sign up customers directly rather than via third parties.

Six months on and the dust has settled. So are we any the wiser as to who is to blame and what happened?

Yes and no.

We know that the taxman has been stung for unpaid VAT and corporation taxes totalling £78m. But in rare piece of good news, the Government will not have to pick up the tab for unpaid salaries or redundancy pay, with all £3.4m owed to staff being paid by the remaining funds.

Just how complex the company structure was made by BC Partners was also revealed by PwC, with 18 subsidiary and parent companies named in the report, and a plethora of other “shelf” companies on Companies House.

Quite why the business needed such a structure is unclear, but the tax-efficient rules in Jersey probably helped.

The future of the empty Phones 4U stores has also been clarified, with Vodafone buying 140 stores and EE snapping up 58 sites – fuelling the suspicions that the networks wanted a cheap way to open more own-brand stores on the high street.

Phones 4 U ad shows a woman in bed with her boyfriend saying: "I'm faking it, can I upgrade?"

But despite the race for space on the high street, which has seen convenience shop numbers explode, administrators could only sell a further 20 stores, meaning 345 former stores lie empty six months on.

There was, however, some good news for the 4,523 staff, with around 1,200 being offered jobs at the new EE and Vodafone stores, while Currys PC World agreed to take on the 788 staff who worked in the Phones 4U concessions inside their stores.

Coincidentally, the collapse came at the perfect time for Currys PC World, as parent company Dixons had just completed a merger with Carphone Warehouse and was keen to turn the Phones 4Us it already had into Carphone stores as quickly as possible.

But the most interesting aspect of the whole saga is the questions that remain unanswered, with no resolution in sight.

Just why did five directors of one subsidiary – Mobileserv Limited – borrow £460,000 from the company to buy shares in the parent group Phosphorus Jersey Limited in February 2014?

PwC is keeping quiet on who the five directors are – in the hope of coaxing them into paying up the money sooner rather than later – other than saying they were “members of the Group’s Board/senior management team”.

At the time, the board consisted of former Phones 4U chief executives David Kassler and Tim Whiting, former deputy and non-executive Phil Dobson and former chief legal officer Steven Lloyd.

It is not known whether these were the men behind the loan but they were certainly central to the business, holding a total of nearly 150 directorships across the swathe of Phones 4U’s subsidiaries.

None seem to be keen on coming forward with an explanation, but what PwC fails to uncover may be dug up by the legal firm Quinn Emanuel Urquhart & Sullivan, which has been hired to look for any signs of foul play.

Initially, the administrators had expected to receive an update by December, but it looks like the investigation remains ongoing.

The conduct of EE and Vodafone will also be examined to see whether the suggestions of pressure by the networks to force the administration played a part.

If any wrongdoing has been found, do not expect the administrators to shout about it. PwC is required to write a report on the company directors as part of the process, but this will be passed to the Government’s Department for Business, where it will remain confidential.

Ministers may choose to pass on information to the Serious Fraud Office, recommend directors are reprimanded, or simply do nothing. Whatever the course of action, it may be quite some time before the full picture surrounding the collapse of Phones4U emerges.