Carron Company (Hansard, 4 November 1982)

§ Mr. Martin J. O'Neill (Clackmannan and East Stirlingshire)

I wish to raise the Department of Trade's refusal to conduct an inquiry into the affairs and presentation of accounts of the Carron company of Falkirk, which is based in my constituency.

I wrote to the Secretary of State for Trade on 14 September following disclosures in the Sunday Standard of 12 September. Articles in that newspaper alleged that the Carron company, which had gone into receivership on 3 August this year, had had links with one of its largest customers, the firm of Kennedy-Woods of Southampton. If the allegations in the Sunday Standard are true, those links with that firm should have been stated in the company's final accounts. Furthermore, that disclosure would have materially affected the view of the Royal Bank of Scotland and the County Bank, which between them had lent about £12 million to the company.

In his reply on 12 October, the Minister of State said that, following an examination of the various companies, his officials could find no connection between Kennedy-Woods and the Carron Company. He further stated that Carron's auditors did not discover any connection and that the company's directors gave an assurance that no such connection existed. It must be emphasised that had the auditors, Ernst and Whinney of Glasgow, uncovered such a link, they would have been obliged to draw attention to it in their report on the final accounts and the balance sheets. The directors for their part would have been admitting that they had not disclosed highly relevant information to the shareholders.

However, as the source of the allegations was in the first instance the three Sunday Standard journalists, Mr. Ray Perman, Mr. Alistair Balfour and Mr. David Scott, why were the officials not instructed to approach them? As far as I can gather, up to today none of those gentleman, or the publishers of the newspaper, has been issued with any legal action for libel by any of the accused parties.

I hope that the Minister will tell the House when his officials first approached the firm of accountants that prepared a report on the state of Carron in March this year. That firm, Deloitte, Haskins and Sells, conducted an investigation into the current trading position of Carron at the insistence of the Royal Bank of Scotland and with the agreement of the firm. Did the Minister's officials approach the members of Deloitte, Haskins and Sells, who subsequently became receivers for Carron, before writing to me on 12 October? Had he taken steps to obtain a view of the report? Had the Minister or his officials done so, I am confident that his reply of 12 October would have been different.

Carron's largest customer was the builders' merchants Kennedy-Woods of Southampton, which was owned by Euryalus Investments which, in turn, was owned by Shavelynn Ltd. Of the 1,000 Shavelynn shares, 900 were held for Carron by N.C. Lombard Street Nominees Ltd. Those shares were preferential, which meant that Carron had the right to a return on capital in the event of liquidation. They were non-voting shares but Carron had the right at any time to convert them into voting shares.

216 All that information was disclosed in the report prepared by Deloitte, Haskins and Sells. That report drew the conclusion that, to all intents and purposes, Carron, through N.C. Lombard Street Nominees Ltd., Shavelynn and Euryalus, could own Kennedy-Woods at any time. That meant that Carron's major customer, a firm that took some 20 per cent. of its output, was effectively an almost wholly owned subsidiary of the Carron Company. One must ask whether the Royal Bank of Scotland and the County Bank would have extended credit facilities to the tune of about £20 million if they had known about that. My understanding is that they would not.

I should not like to speculate on Carron's board's intentions in developing such a scheme. That is not helpful. Nevertheless, it is important to take account of the fact that the report was prepared by the firm that subsequently became the receiver. That strongly suggests that there was a link. Had knowledge of that link been available to the lenders of the considerable sums of money involved, the Royal Bank of Scotland would not have been as helpful as it was.

My anxiety is that by failing to make adequate disclosures Carron was able to carry on trading without the type of effective outside help that would involve a restructuring of management, which might have involved a more direct inclusion of finance. It might have been able to organise the affair in the way for which the Scottish Development Agency and the Scottish Economic Planning Department are ideally suited.

Following the receiver being called in, the other local Members of Parliament—my hon. Friends the Members for West Stirlingshire (Mr. Canavan) and for Stirling, Falkirk and Grangemouth (Mr. Ewing)—and I have received exemplary assistance from the officials of the SDA and the Scottish Economic Planning Department. I recognise also that the efforts of the Under-Secretary of State for Scotland have not been inconsiderable.

It is of great credit to the Scottish Office that it has backed a firm in such regrettable circumstances through the institutions that it has at its disposal. Had sufficient knowledge been available beforehand, the rescue operation that has been mounted with some success would not have been necessary.

As late as May this year, some 215 jobs were sold from under the workers' feet when the appliances division that made cookers was passed to Cannon Ltd. The transaction went through for about £2 million. The consequent redundancies resulted in my colleagues and I having to approach the Department of Employment as the Cannon management was trying to avoid the requirements and responsibilities of employment protection legislation to give due notice.

We know of the Carron board's anxiety to ensure that as much of the £2 million proceeds of the sale as possible should go to the banks that had lent the money. That was not possible. We also know that, as late as the end of July, immediately before the receiver was called in, the Royal Bank of Scotland loaned £100,000 to pay for the work force's wages.

I am extremely concerned that only about 300 people are left of a work force of about 1,100 at the beginning of the summer. The firm has a special place in Scottish industry. In many respects, it is unique. It was credited with starting the first iron foundry in Scotland and to all intents and purposes it established the industrial revolution in Scotland. For many years it was the largest employer 217 in central Scotland and the plumes of smoke from the furnaces dominated the landscape. Carron owned coal mines, ships and vast estates. It produced the connonades for Nelson's fleet at Trafalgar and to this day has supplied mail and telephone boxes for post offices throughout the Commonwealth.

The chairman of the company until the receivership was Mr. Colin Strathearn of Ropner Stroyan, a senior partner is one of Scotland's most distinguished law practices—Brodies of Edinburgh. Its managing director, John Lambie, is a leading Scottish business man, sitting on the boards of some 19 companies. Even after the receivership, he was able to enjoy the backing of the merchant bankers, Noble Grossart, in an attempt to act as an adviser to an interested group which at one stage seemed willing to take over part of Canon. Whether it was due to the Sunday Standard disclosures or no, the Walter Alexander Group of Falkirk decided not to adopt the scheme whereby Mr. Lambie's shares would have been bought out eventually for £100,000, a profit-sharing scheme under which he would have received £10,000 for every £1 million of profit earned by the new company and engagement as a two-day-per-week consultant at £15,000 per annum.

The individuals involved are no shady fly-by-nights lurking in the undergrowth of the building industry. They are eminent pillars of the Scottish commercial establishment. They enjoy the confidence of the financial community in Scotland. I believe that their standing and the confidence that they enjoyed would have been greatly diminished had the arrangements to which I have referred been more widely known. Their fitness to run and to be responsible for a once-great firm, which until recently employed many of my constituents, would have been questioned and many of the poor people now languishing in the dole queue might still have been in employment.

I therefore ask the Minister to consider again whether there should be further inquiry into the affairs of Carron. It is my contention that the initial inquiry was superficial. A number of people seem not to have been consulted when the letter that I received was prepared. The information that I have presented today suggests that a deeper examination is justified of the circumstances surrounding the financial circumstances linking Carron with its major customer, Kennedy-Woods. I believe that these matters are worthy of further consideration by the Department because there is great anxiety in my constituency about the name of the firm and the arrangements that were involved, and about the fact that if those arrangements had not been in train the good offices of organisations such as the Scottish Economic Planning Department and the Scottish Development Agency might have been brought to bear at an earlier stage and might have saved more of the jobs and retained the good name—now sadly besmirched—of an important firm in my constituency.

§ The Minister for Consumer Affairs (Dr. Gerard Vaughan)

I have listened extremely carefully to what the hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) has told the House and I shall certainly study it in the Official Report. I assure the hon. Gentleman that if there are points that the Department should take up we 218 shall gladly do so. I appreciate the hon. Gentleman's concern about the company and particularly his concern about the loss of jobs—a concern that we all share.

When the hon. Gentleman brought his case to the notice of the Department in a letter dated 14 September, as he reminded us today, he enclosed a copy of an article in the Sunday Standard newspaper of 12 September. The hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing) had written a similar letter the previous day.

This well-known company has been operating since a Royal Charter of 1773, and it is a matter of deep concern to everyone—not least the employees, most of whom are constituents of the hon. Member—that poor results in recent years culminated in the appointment of receivers a few weeks ago. I understand that the receivers have been able to sell off at least part of the company's operations and that as a result some jobs at least can be saved.

The Sunday Standard article alleged that the company had failed to disclose to its bankers and auditors that its major customer, Kennedy-Woods Ltd. of Southampton, which owed the company about £1 million, was effectively controlled by the company itself so that the full extent of its financial difficulties was concealed; also, that an attempt by the receivers to dispose of the company's stainless steel sinks and baths manufacturing division had been unsuccessful because the company's managing director, Mr. John Lambie, had asked for a substantial financial stake and future income which were not acceptable to the potential purchasers.

The relevant statutory provisions, which would give my Department power to appoint inspectors to investigate a company's affairs, or ownership in certain circumstances, are contained in sections 165 and 172 of the Companies Act 1948. Section 109 of the Companies Act 1967 is also relevant. Briefly, section 165 may be invoked if there are circumstances suggesting fraud, misfeasance or misconduct by or towards the company; or that its affairs have been conducted in a manner unfairly prejudicial to some part of its members; or that members have not been given all the information with respect to its affairs which they might reasonably expect. An investigation of the ownership—shareholders—of the company under section 172 may be initiated by the Department if there is considered to be good reason. Reports of investigations under sections 165 and 172 may be published. That is important.

Section 109 of the 1967 Act gives the Secretary of State power "at any time" if he thinks that there is "good reason" to require a company to produce books or papers for inspection by an officer of the Department and to provide an explanation of any of them. This section enables discreet inquiries to be made in order to establish whether a full-scale investigation under the 1948 Act is warranted, or other action—for example, a petition for the company to be wound up or the institution of criminal proceedings—is called for. Reports of such investigations are not published, and information thus obtained cannot be disclosed except in the very limited circumstances specified in section 111 of the Act.

In substance, we have not had sufficiently good reason put to us to justify inquiries of this kind. The report prepared for the company and the bank by Deloittes was private and confidential, and, in the absence of an order for a formal inspection, the Department's officials have no 219 power to call for a sight of it. Officials have therefore not requested the report or seen it. The auditors were spoken to after the receipt of the hon. Gentleman's letter of 14 September and before the reply was sent.

With regard to the allegation that Carron Company Ltd has not disclosed its control of Kennedy-Woods Ltd, Carron's auditors have informed my Department that their close investigations have not revealed any connection between the two companies other than that of supplier and customer.

Nevertheless, my Department is making use of the powers granted to it by section 173 of the Companies Act 1948 to make some inquiries into the beneficial ownership of Kennedy-Woods Ltd. I am sure that the hon. Gentleman welcomes that. This section, as amended by section 90 of the Companies Act 1981, provides that where it appears that there may be good reason to investigate the ownership of any shares in or debentures of a company and that it is unnecessary to appoint an inspector it may require any person whom it has reasonable cause to believe to have, or to be able to obtain, any information as to the present and past interests in those shares or debentures and the names and addresses of the persons interested and of any 220 persons who act or have acted on their behalf in relation to the shares or debentures to give any such information to the Secretary of State. That is what we are looking into.

As for Mr. Lambie's position, the sale of the company's assets is a matter for the receivers and not something in which my Department can intervene. I was pleased to note from a newspaper report on 29 September, however, that the receivers have now sold the sinks division, with a consequent saving of 130 jobs.

I well understand why the hon. Member has raised this issue and it is right that such matters should be ventilated, if only to allay the fears of the work force about their future employment. Unless some new information comes to light—it would have to be substantial—I do not consider that the appointment of inspectors to investigate would be justified and I sincerely hope that the receiver's negotiations to dispose of the remainder of the Carron Company's business assets—and the future trading of new owners—will be successful.