HC Deb 05 July 1988 vol 136 cc1035-42

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lennox-Boyd.]

1.4 am

Sir Peter Emery (Honiton)

The problem concerning the Barlow Clowes affair cannot and should not escape parliamentary consideration. In an entirely honest and well-run financial investment market, the affair should never have happened. Because Barlow Clowes recieved the stamp of approval from the Department of Trade and Industry, it is not surprising that many investors in these companies feel that they should have been alerted long before the terrifying collapse came about. Like many other hon. Members on both sides of the House, I have received dozens of letters from constituents expressing concern at their unbelievable financial loss through their investments.

There are many complications, but let us try to sort out the matter. Two companies are involved: Barlow Clowes Gilt Managers, with 7,400 clients investing £52 million; and Barlow Clowes International, the Gibraltar organisation, with 11,500 clients who had invested over £138 million. As I understand the position, the liquidators have realised £52.3 million from the gilts management company but only about £16 million from the Gibraltar company, where it appears that there is an unsecured loan book of £85 million.

It seems that £62 million had been lent to companies associated with Peter Clowes and £13 million to companies associated with Guy von Craamer, while £2 million went to James Ferguson Holdings—the parent company for the Barlow Clowes operation—£2 million to a Geneva accountant, who is an ex-chairman of James Ferguson, a Mr. David Mitchell, and £1 million to Dr. Peter Naylor, another director of James Ferguson. It would appear that some £40 million is missing, and that as much as 80 per cent. of the loans authorised by Clowes in the loan book is unlikely to be recovered.

The tragedy of all this is the number of small investors who were taken in by the belief that their investment was safe in Government gilt-edged securities—investors who were advised by a number of professional financial advisers, whose marketing technique is much open to question and who appealed especially to retired persons. The investments catered for providing half-yearly or even monthly distributions, and are known in some circumstances to have been recommended on writing paper from the Retired Persons Investment and Pensions Advisory Service, with a message headed "Guaranteed Income-Investment Services". They enclosed a schedule of actual return you will receive from your investment in the Guaranteed Income-Investment Services equivalent to 15.42 per cent. gross. The letter closes with the phrase: I am very pleased that you have taken advantage of this excellent guaranteed investment which provides a high income guaranteed not to fall. If that is not pretty near fraud, I do not know what is.

I should like to ask the Minister a number of questions. Before I do so, however, I think it right to stress that those who wish to condemn the Department of Trade and Industry must understand one thing. In the carrying out of any investigation, if it becomes apparent or leaks out to investors that a company is under suspicion, that can bring about a major loss of confidence in the company. The possibility then arises that the very investigation, at its inception, could he the cause of a considerable loss of funds for investors. The DTI must act to help rather than hinder honest companies and proper investment. In carrying out its responsibilities, it must perform a very difficult balancing act, and circumspection is essential.

Will the Minister let the House know how many official complaints or intimations of concern were received by his Department about Barlow Clowes from 1985 to 1988? If the investigators were appointed in October and November of last year, under section 106 of the Financial Services Act, why was Barlow Clowes not warned not to accept any further investments until an interim report from the investigators had been received? If this had happened, a considerable number of people who later invested would have been saved.

Does the appointment of Sir Godfray Le Quesne to investigate the facts concerning the Department's handling of the matter preclude any investigation being carried out by the Parliamentary Commissioner, the ombudsman, as has been suggested? I should like to know the answer, because, if that is the case, for how long will this hold sway? Limitation on the action of Members of Parliament referring matters to the Parliamentary Commissioner is unacceptable and something that the House will want to take up quickly.

Although it has been made clear that the report by Sir Godfray will be published, may we be certain that we can have that report, given to the Minister, preferably by September, but certainly by October? Any further delay would be unacceptable. Is it correct that the police in Manchester were carrying out certain investigations into the Clowes companies as long as two years ago? Did the Department know this?

Has my hon. Friend considered the position of certain of the financial advisers associated with placing Clowes investments, two of whom, I believe, have now had their licences withdrawn? Have these companies indemnity insurance? Any professional financial adviser who persuades an investor to put all his money in one fund rather than having a spread of investments is hardly professional. Then to give advice to put all the money into a fund that is allegedly giving a return, supposedly in gilt-edged securities, which is considerably above the return that any other similar investment could bring must be considered to be providing dubious advice, and perhaps even fraudulent advice. Should not the Department be looking into this side of the affair much more fully?

Should there not be a more full inquiry that will consider the position and the relationship of Spicer and Pegler, the auditors, Touche Ross and Co., which advised and recommended Clowes backing into James Ferguson, and Singer and Friedlander, merchant bankers to Clowes' deals? Should not these highly professional firms have smelt a rat? If not, why not? Surely the public has a right to know, and it may not be just the Department that has to carry blame.

Factually, the investors in Barlow Clowes International, the Gibraltar company, are likely to suffer a severe loss, if not a total one. Any distribution from this investment is likely to take years rather than months because of the complexity of the situation, and the difficulty in realising or obtaining refunds of loans. However, there are two specific problems about the gilts management company, although there is also more hope. The first problem is ascertaining whether some of the funds realised by the liquidators was money put in from Gibraltar, or from other sources, to prop up Barlow Clowes Gilts Management because the Securities and Investments Board was breathing down its neck.

Secondly, a new factor has emerged. The Inland Revenue has put the special office of the inspectors into the company. Therefore, will the Minister use all his power to urge the Treasury to ensure that the tax implications are sorted out in days or weeks, rather than months or years? That is often what happens in such cases as this.

If that cannot be achieved because the Department is the official receiver and Cork Gully, which is doing an excellent job, is only the manager, will the Department consider two possible steps to help the 7,500 investors in the short term? It should either allow the fund managers to make a distribution, perhaps every three months, of the income arising from the £53 million in its hands and now invested so that the investors can obtain some income, or, as the official receiver, direct that a 10 or 15 per cent. distribution be made, for which purpose it should approach the court. In either case, obviously, distribution should be made only to those investors who can substantiate their position absolutely to the satisfaction of Cork Gully, the fund managers.

If Sir Godfray reports in a manner unfavourable to the DTI—and I wish at this stage to make no judgment at all—may we have the assurance that the Government will take rapid steps to assess and to provide compensation? Whatever the outcome, this is an unhappy situation that can please no one. The Government must take, and would want to take, every possible step to bring it to a rapid conclusion.

What stands out above all else is that anyone placing his savings in an investment should always ensure that his capital is spread in a number of accounts or companies and never placed in a single investment. Secondly, caveat emptor, the investor must beware if the financial dividends suggested or advertised are greatly above the normal market returns. That can be achieved only if the investor is taking considerable extra risks of loss, and risks which in this sad case most of the investors believed they were being guaranteed against.

The Government cannot brush this matter under the carpet. There must be no cover up, and I do not believe that the Government would want that. Where there is fraud or malfeasance, prosecutions must quickly be brought. If there is culpability at the DTI, compensation must be assured.

1.17 am
Mr. Nicholas Winterton (Macclesfield)

I am most grateful to my hon. Friend the Member for Honiton (Sir P. Emery) for permitting me to speak briefly. In doing so I declare a constituency interest. Not only have I hundreds of constituents who have been investors in the Barlow Clowes companies, but Mr. Peter Clowes is a constituent and his gilts management operation is based in Poynton in my constituency.

As the Parliamentary Under-Secretary of State for Corporate Affairs will know, I have in my files copies of correspondence dating back to 1984 that give not just a number of warnings about Barlow Clowes but show that the whole system of self-regulation of the financial services industry subsequently established by the Financial Services Act is inadequate, does not work, and should never have been expected to work. The spectacular collapse of Barlow Clowes was not just possible under the Act, but was arguably a direct result of pressures arising out of the Act and changes in taxation policy. Warnings were given to the DTI, but were not heeded.

Long before the Financial Services Act was introduced, I, on behalf of a constituent, Mr. Peter Hayes, an investment consultant, alerted the Government to the inevitable results of the provisions of the Act. The Prime Minister was warned in a letter of 22 March 1984 that the Act which may shortly be placed on the Statute Book will merely drive those with poor ethics in the industry to operate offshore—in Gibraltar. Those were the warnings given to the Government about what was happening, but, sadly, those warnings were ignored.

Like my hon. Friend, I make a plea that the Government publish the internal inquiry report as soon as possible, but much sooner than he requested. I believe that it would be wrong to do it when the House is in recess and can do nothing about it. There is pressure, and a duty, upon the Government to have it published before the end of the month and before the summer recess. Many of those who invested were elderly and were relying on their investment to maintain an acceptable standard of living in their retirement.

There are literally thousands of investors in the south Manchester area. If there is any evidence in the report of neglect, maladministration or of something wrong in the Department itself, will the Government make compensation available at the earliest possible date?

1.20 am
Mr. Stephen Day (Cheadle)

rose——

Mr. Deputy Speaker (Sir Paul Dean)

Does the hon. Gentleman have the leave of the hon. Member for Honiton (Sir P. Emery) and the Minister to speak?

Mr. Day

Yes, Mr. Deputy Speaker.

I congratulate my hon. Friend the Minister and my right hon. Friend the Secretary of State on setting up the independent investigation, which is very helpful. I would also like the report to be placed before the House as soon as possible. We are talking not about people who invested for a quick overnight kill to buy a Porsche, but about people who are in dire financial circumstances as a result of the collapse.

The money that was invested came from such things as early retirement payments, redundancy money, matured insurance policies and savings. I know of 400 people in such circumstances. They looked for security in later life. It has to be said that one of the key elements in assuring them of that security was the DTI licence. Even though the licence applied only to the United Kingdom operation, its existence reassured Gibraltar investors. Both were sold as gilt-edged securities. I understand that there were doubts about the company previously. If the licence had been withdrawn from the United Kingdom operation, that would have saved many people from investing in the Gibraltar one.

I urge my hon. Friend the Minister to accept in principle, without making any commitment before he knows what the results of the inquiry might be, that if the report shows that the DTI's role contributed to the financial distress of investors, compensation will be considered. These people are in dire straits and need some security for the future. Neither I nor the investors to whom I have spoken expect the DTI to carry the can for them. They accept some responsibility for their investments, but if the report shows that the Department was a contributory factor, it should make some announcement about compensation.

1.22 am
The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Francis Maude)

My hon. Friend the Member for Honiton (Sir P. Emery) opened the debate by saying that this is a matter which it is proper for Parliament to consider. We do not shrink from that, and I am grateful for the opportunity to set out, in perhaps a little more detail than I was able to go into when I made a statement a few weeks ago, what the position is.

Nobody is more aware than me of the distress and anxiety that has been caused to thousands of people. Many right hon. and hon. Members have received letters from many constituents who are in this distressing situation. Many hon. Members have sent those letters to me, so I am acutely aware of the distress that has been caused and of the anxiety of many that the matter should be brought to a conclusion as soon as possible.

It is particularly distressing that, because of the way in which the Barlow Clowes schemes were marketed, a substantial proportion of investors are retired and can ill afford to lose their savings, as my hon. Friends have said. The House will understand that other creditors may be involved and that it is important, in fairness to everyone concerned, that the normal proceedings established by insolvency law should be followed.

Nobody who is involved in this process can be in any doubt about the impact that the events of the past few weeks have had on the lives of those people who are affected, and I am determined that all should be done as quickly as possible to establish what the prospects are of investors recovering any of their investments, and how quickly they might be realised.

In explaining this case, it is vital that we bear in mind that we are discussing principally two separate companies. The first is the United Kingdom firm, Barlow Clowes Gilt Managers Ltd. which, as I explained on 13 June, held a licence under the Prevention of Fraud (Investments) Act 1958 until 29 April this year. It subsequently operated under interim authorisation under the Financial Services Act until the Securities and Investments Board exercised its powers of intervention. Those powers of intervention were given to it by the Financial Services Act 1986. Those powers did not exist under the previous Act. It is important that I should make that clear to my hon. Friend the Member for Macclesfield (Mr. Winterton) because there has been some misunderstanding about that.

That company was also the subject of the section 106 investigation, to which I referred in my statement. As the House knows, the facts of my Department's handling of that case are currently under investigation by Sir Godfray Le Quesne and I know that the House will not, therefore, expect me to comment on those aspects of the case until Sir Godfray's report has been received. Several of the matters on which my hon. Friend the Member for Honiton asked me to comment fall fair and square within Sir Godfray's remit and it would be wrong for me, at this stage, to try to provide answers that might be incomplete.

It would surely be better for Sir Godfray's inquiry to take its course and for the full facts to be set before the public as soon as possible. He knows that it is our concern that that should be done as quickly as possible and he shares that concern. He has been at work for the past two and a half weeks and has said that he hopes to report to us before the House reassembles in the autumn. There can be no benefit to anyone in the investigation being too hurried. It must be done properly and I hope that he will take it as an earnest of our intentions that we believe that nothing should be swept under the carpet, that there should be nothing remotely resembling a cover-up, that all the matters should be fully investigated and that we should not seek to publish the report before Sir Godfray has had the fullest opportunity to investigate. None the less, he is aware of the urgency and has said that he hopes that it will be possible for him to report before the House reassembles.

Mr. Nicholas Winterton

I accept my hon. Friend's explanation, but will he say precisely what the position is over the licence granted to Barlow Clowes? As I understand it, the company was trading for a considerable period without a licence and was not granted a licence until September or October 1985, some two years after it had started trading and should have had a licence to do so,

Mr. Maude

I covered that matter in my statement of 13 June. The facts are broadly as my hon. Friend sets out, but they will be covered by the investigation.

My hon. Friend the Member for Honiton mentioned the possibility of investigations by the ombudsman. It is, of course, open to any hon. Member to bring a complaint from a constituent to the attention of the ombudsman, but it is for him, in every case, to decide whether he investigates. Section 5 of the Parliamentary Commissioner Act 1967 governing his powers outlines the circumstances in which he may not investigate, but it is, in every case, for him to make up his mind within the terms of the Act. There are no powers for the Department to prevent an investigation taking place, nor would we seek to do so.

Investors who have placed money with the United Kingdom company will naturally be keen to know where matters now stand. The court has appointed an official receiver as provisional liquidator, to prevent further prejudice to the interests of investors, and has also appointed joint special managers. The special managers are receiving information from investors, who should register their interests with them as soon as possible. The court will be hearing the petition for winding-up tomorrow, 6 July. Obviously, I cannot speculate on the outcome of that hearing. If the court were to make a winding-up order, the official receiver would need to call a meeting of creditors, and the creditors and shareholders would have the opportunity of appointing a liquidator to replace the official receiver.

The House will understand that these procedures inevitably take some time. I am much aware of the anxiety of investors, and I know that in the event of liquidation they will want the earliest possible indication of the prospects of recovering some or all of their money. I am aware also that there is concern about tax implications. Any tax implications that may emerge should be resolved at the earliest possible moment.

It seems likely—this may have been read by some—that investors with Barlow Clowes Gilt Managers Ltd. have a good chance of recovering a good part of their money. This may turn out to be so, but the special managers are still investigating what additional claims there might be and, in particular, whether there has been any intermingling of the British and Gibraltar client funds. That is why it is really not possible for me to make a clearer statement now.

Many of the most distressing cases appear to involve investments placed with Barlow Clowes International. I must inform the House that here the position looks rather less encouraging. BCI's view was apparently that it was not carrying on business in this country. Accordingly, it did not seek a licence or other authorisation under the old Act. Nor has it sought authorisation under the new Act. Whether my Department had reason to believe that it, BCI, should have had a licence will have to be judged on the facts that will be covered in Sir Godfray's report. A company that is not carrying on business in Britain is not, and cannot be made, subject to our supervision, either under the old or the new legislation. As a Gibraltar-registered company, the liquidation of BCI is proceeding according to Gibraltar law. The current position is that proceedings have been taken in Gibraltar, and joint liquidators and joint receivers have been appointed. My Department is in touch in parallel with the Gibraltar authorities.

The House will know that the serious fraud office, in conjunction with the City of London police company fraud department, is also investigating Barlow Clowes Gilt Managers Ltd., BCI, and associated companies. A charge of attempting to pervert the course of justice has already been brought, and is clearly sub judice.

The volume of correspondence relating to investors dealing with the Gibraltar company, BCI, has inevitably focused attention on the role played by intermediaries, as my hon. Friend the Member for Honiton suggested, in recommending the Barlow Clowes schemes. This is an important link in the chain. If BCI is right in maintaining that it did not require a licence or authorisation, its products could not be marketed in Britain except by intermediaries which were so licensed or authorised.

It appears that in the majority of instances the intermediaries involved were members of FIMBRA, the Financial Intermediaries, Managers and Brokers Regulatory Association. None, so far as I am aware, was a licensed dealer. As FIMBRA was a recognised association of dealers under the old Act, its member firms did not require a licence and were not directly regulated by my Department. They were, however, required to comply with the rules of FIMBRA, which would have obliged them to exercise proper care before recommending investment products such as the Barlow Clowes schemes. Both FIMBRA and the Securities and Investments Board are looking closely into the relationship between Barlow Clowes and the intermediaries which recommended their products. FIMBRA has already prohibited from taking on new business the two firms which seem to have been responsible for much of the money from Britain which was placed with BCI.

Hon. Members have been pressing, tonight and previously, for me to make a statement on the question of compensation for investors in Barlow Clowes. I understand why they should press me in that way. On the general issue, it would be wrong for me—I think that this is accepted—to prejudge the findings of Sir Godfray's report. The object of the inquiry is to ascertain the facts. It would be nonsensical, having ordered the inquiry, if we were to commit ourselves in advance to a particular response on a series of, as yet, hypothetical possibilities. I know, and deeply regret, that the uncertainty of the position of investors must add to their distress, but until we have facts to go on I cannot say what the position on compensation will be, or ought to be.

I am grateful for the balance which my hon. Friends who have contributed to the debate have brought to it and for the temperate way in which they have expressed themselves. I hope that they are reassured as to the urgency with which we are addressing this matter and the concern with which we are approaching it. There is no intention to cover up anything. We have expressed our determination that all these matters should be investigated as fully as possible.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes to Two o'clock.