On occasions, I get some feedback about my book, ‘When you are Super Rich, who can you Trust?’ Last week, a reader wrote ‘I have really enjoyed reading your book. It’s not as easy as you think to be super rich!’
The feedback reminded me of the tragic story of Karen Millen, who this year was forced to sell her home to pay tax owed as part of bankruptcy proceedings brought against her by HMRC.
The sorry story of Karen Millen’s financial collapse, is a typical tale of someone who trusted the wrong people, and paid a heavy price.
Karen was the daughter of a carpet fitter Anthony Millen, and lived her early life in a council house in Maidstone, Kent. Her father suffered from rheumatoid arthritis, and died too young to see his daughter’s success.
After leaving school, she took a fashion course in Kent’s City and Guilds in Medway College of Design. When aged 19, she went on holiday to Morocco and met Kevin Stanford; it was love at first sight and a great partnership.
Between them they took £100 loan in 1981, bought some white fabric, and Karen started making shirts for their friends. This was the start of a business empire which encompassed 400 shops in 65 countries. In the 90s, she and Kevin were riding high – and then everything started to go wrong, starting with the end of her twenty years relationship with Kevin.
In 2001, with a sale in mind, Karen was advised by her accountants to transfer her shares in Karen Millen to Mauritius trustees in a carefully orchestrated and complex arrangement being promoted by a number of leading accountants, known as ‘Round the World’. It would avoid capital gains tax.
Icelandic tycoon, Jon Asgeir Johannesson’s company Bauger then came sniffing, and offered to buy her company for £95 million. Jon was already powerful on the UK high street, and in due course owned stakes in All Saints, House of Fraser, Hamleys, the Icelandic frozen food chain and Woolworths. In 2007, at the height of his success, he was named the third most powerful retailer in Britain, by Retail Week.
The sale went ahead in 2004. Baugur the buyer financed the purchase through, Kaupthing, the Icelandic bank. On October 2008, Kaupthing was taken over by the Icelandic Financial Supervisory Authority, it was bust. But 40% of the purchase price for Karen Millen was not settled. In due course, Karen and Kevin were given 8% in Baugur and 4% in Kaupthing, which then collapsed along with other Icelandic financial firms. So, they received only a fraction of the sales price.
Karen wanted to start work again now that her business was sold. She wanted to start a homeware firm selling to the US and China, but the administrators of Kaupthing bank would not allow her to use her name ‘Karen’ for the new business. She took the case to the High Court and lost, with an order to pay £2-3 million of costs for both sides.
Then in 2010 HMRC came knocking. It claimed that the gain made on the sale of her shares in Karen Millen was not made by a trust based in Mauritius, but in the UK. The scheme was ‘carefully orchestrated from the UK’ and therefore taxable in the UK! This decision was upheld on appeal and in September 2016, Karen was served with a tax notice to pay £6million of capital gains tax.
She had been advised every step of the way, but failed to receive full consideration for the sale of her company, had been ordered to pay legal costs of both sides on her failed attempt to start a new business with the name of Karen, and the tax scheme she had entered into on advice from her accountants had collapsed – she was left with nothing.
When Karen was ordered to pay £6million in tax – which she did not have – HMRC proceeded to make her bankrupt and ordered the sale of her beloved Grade II Georgian home in Wateringbury, Kent to pay the tax.
Of course, in hindsight it is easy to say she should have steered clear of Baugur, but Johannesson was a powerful British retail tycoon. She should not have trusted her accountants with a risky tax avoidance scheme, but lots of accountants were promoting this arrangement. And, she should not have fought a case against the administrators for the use of her name which she had already sold, but she was advised to do so.
It is arguable that Karen had not been brought up with finance and money, and therefore was more gullible than most – I think she simply trusted the wrong people and got it – very wrong.
The advice I give in my book to anyone hoping to have the success of Karen and not the failures, is choose your advisers carefully and always remember
· If it looks too good to be true – don’t touch it
· If you don’t understand it – avoid it, and
· Never fight, unless the odds of winning are good.
If you would like to buy my book, ‘When you are Super Rich Who can you Trust?’ or would like to find out more as to how I could be of assistance to you, simply call 020 3740 7422, or e mail email@example.com.