Philip Green and Dominic Chappell made money out of BHS. The law may allow it, but they have a moral duty too

Anyone in the developed world is building on the work of millions of others. The better off people become, the greater their debts to society

Dominic Chappell, the largest shareholder in Retail Acquisitions, which bought BHS in March 2015 for £1 (Isle of Wight County Press)

Does it pass the smell test? The collapse of BHS into administration is a sad story on many levels. It is another example of a retailer under pressure from online sales. It is an example of the squeezed middle, a mid-market brand suffering because people either want cheap and cheerful or ultra-posh. But the element of the story that stands out is whether it is right for a flamboyant billionaire to appear to walk away from a company he recently sold, leaving tens of thousands of people worrying about their jobs and their pensions.

There are two issues here: the legal obligations on directors of limited companies, and the moral obligations on people with great wealth. They are separate, and it is important to keep them so.

The concept that the liability of the owners of a company should limited to the money they put in is a long-established one, in England going back to the Limited Liability Act of 1855. During the 19th century, nearly all other countries were much the same, with New York actually beating England with legislation as early as 1811. It is the very core of the capitalist economy. Without limited liability, every owner – that is, every shareholder of every business – would have to stump up if it went bust.

In exchange for this privilege, directors have obligations. They have to keep proper accounts, register their business, report those accounts, hold shareholder meetings, and so on. Crucially, you must not continue to trade if you are insolvent. This applies to every company, even if it is a one-person business.

If the company is quoted, there is a whole raft of obligations on top. There are parallel obligations on the trustees of charities, pension funds and the like. There are also regulators of many types of business, of charities and of pension funds, which apply a further set of obligations.

These obligations don’t stop businesses, or indeed charities, going bust. Look at Kids Company. But they do require directors and trustees to behave in a responsible manner, given the information they have at a time, and in recent years the courts have been taking a more rigorous approach to directors’ actions.

But it is complicated establishing what directors know, or should have known, about a business. Thus the shareholders’ action against Royal Bank of Scotland for having a rights issue shortly before it collapsed in 2008 has been delayed until March 2017.

So we should not rush to judgement about the situation at BHS. There are at least half a dozen points of concern, under both its previous ownership by Sir Philip Green and under the consortium led by Dominic Chappell to which he sold it, a year ago, for a pound.

These concerns include Sir Philip’s transfer of £400m out of the company in dividends to his wife, the negotiation with pension fund trustees over the actuarial deficit in the fund, the terms of the sale to the consortium, and the subsequent actions by the new owners. But each action should be judged on its merits and on the information available at the time.

We live in a society governed by law, and thankfully so. If laws have been broken then people should be punished. If laws prove inadequate, then they should be amended. It is as simple as that.

The moral issue is quite different. It is extremely fuzzy. We all have our views as to how society should best be organised but nearly all of us would accept that, as John Donne put it, “no man is an island, entire of itself”.

So people who own businesses and have made fortunes have only been able to do so because they live within a society of laws, of other people, of markets. Anyone who is lucky enough to live in the developed world is building on the work of millions of other people who created the infrastructure of the modern economy. The better off people become, the greater their debts to those before them.

To some extent those debts are repaid through the tax system, with in Britain the top 1 per cent of earners contributing a quarter of all income tax revenues. But most of the very rich, or at least the rich that make their money themselves, chose to do more.

That leads to the strange paradox that industrialists are remembered not for how they make their money but rather how they give it away. Think how William Morris’s Nuffield College in Oxford, the Nuffield Hospitals, the Nuffield Foundation and much more all live on, while Morris Motors is just a name on a few vintage motor cars.

Now apply this thought to Sir Philip Green. In the ranks of global billionaires he comes in at number 205, according to Forbes magazine, up from 301 last year. This does of course make him immensely wealthy by British standards, and he is all the more to be admired because made the stuff himself rather than by inheriting it. But by world terms he is just another middle-ranker, and one whose reputation is being trashed.

He is to be called before the Work and Pensions Committee in the Commons, which for him is a no-win game. If he refuses to appear, he is forever condemned in the public eye; if he appears, he will be memorably kicked around by MPs. His knighthood is already under threat. Not good.

The moral obligations on the rich should not be a burden, they should be an opportunity – an opportunity to do things for our imperfect society, that for whatever reason, are not being done, or at least not done well enough. Most wealthy families get it. They teach their children responsibility and philanthropy.

Let’s see what comes of this sorry business and let’s hope for a better outcome for Sir Philip as well as the people at BHS.