§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Francis Maude)
With permission Mr. Speaker, I should like to make a statement on Barlow Clowes. The House will be aware of extensive recent publicity surrounding the affairs of Mr. Peter Clowes and companies in the Barlow Clowes group. In view of the public concern on this matter, it is right that I should inform the House of the situation and of the action that the Government is taking.
Many companies are involved. Those most in the public eye have been Barlow Clowes Gilt Managers Limited, a United Kingdom investment management company, and Barlow Clowes International Ltd. a similar company registered in Gibraltar. The holding company of the group is James Ferguson Holdings plc.
Investigators were appointed in November of last year, under section 106 of the Financial Services Act 1986, to examine the affairs of Barlow Clowes Gilt Managers Ltd. The interim report of the investigators has been received and formed the basis for he winding-up petition of that company. The Official Receiver has been appointed provisional liquidator, and special managers of its assets have been appointed at the instance of the Securities and Investments Board.
My Department is in close touch with the special managers, who have been at the company's premises over the weekend. Mr. Clowes has been co-operating during this period with the special managers. At present, it cannot be said with any certainty what the return to creditors will be. Papers have been passed to the serious fraud office, and investigations are being carried out by the police.
On Friday of last week, the section 106 inspectors, Mr. David Ziman, a solicitor, and Mr. Walter Hoffman, an accountant, were appointed under section 432 of the Companies Act 1985 to look into the affairs of James Ferguson Holdings plc. That will in turn enable the affairs of all that company's subsidiaries to he looked at.
The Gibraltar company, Barlow Clowes International Limited, is being wound up at the instance of the holding company, under the supervision of the Gibraltar courts. The joint liquidators are two British firms, Cork Gully, who are the special managers of Barlow Clowes Gilt Managers Limited in the United Kingdom, and Ernst and Whinney.
Public concern has been expressed about the role of my Department in relation to these companies. My right hon. and noble Friend the Secretary of State has decided that this should be examined objectively and independently, and he intends to appoint an independent person of standing to investigate and report to him as soon as possible on the facts of the Department's handling of the matter.
§ Mr. Maude
Subject to there being no legal impediment, as to either content or timing, we propose to publish that report.
Meanwhile, it will be of interest to the House to know of the earlier decisions taken in relation to those companies. In 1984, the Department approached the Barlow Clowes partnership to establish whether it should be licensed under the Prevention of Fraud (Investments) 27 Act 1958. Rumours about the partnership were subsequently reported by the National Association of Security Dealers and Investment Managers. After pressure from the Department, the partnership applied for a licence and in October 1985, after prolonged negotiation and the receipt of assurances, a licence was granted. In October 1986 it was renewed. In October 1987, in the light of some dissatisfaction by the Department with the monitoring returns from Barlow Clowes, and of other information, it was decided to appoint investigators. The company's licence was renewed while that investigation was in progress.
The main priority at present must be to safeguard as far as possible the interests of investors. I cannot at present comment on the amounts which may be at stake or on the position of individual investors. I am sure, however, that the liquidators in London and Gibraltar will seek to resolve the situation as quickly as possible in the interests of investors. I shall make a further statement when I am in a position to do so.
§ Mr. Tony Blair (Sedgefield)
I welcome the appointment of an independent investigator into the DTI's handling of this matter. However, the trenchant action today stands in stark contrast to the years of gullibility and incompetence which preceded it. Will the Minister ensure that the investigator's report is completed as quickly as possible, so that the lessons can be learned?
I understand that the Minister cannot prejudge the report's conclusions. However, will he at least agree with me as to the issues it must address? Is it not the case that, until March 1985, Barlow Clowes's main activity was bond washing, which is a tax dodge with gilt-edged stock? Is it not also correct to say that that practice was outlawed in the March 1985 Budget but that Barlow Clowes continued to offer a gilt-edged fund with a high rate of interest, income tax free, and with no reduction in capital redemption? That scheme was inherently implausible and it should have set alarm bells ringing in any halfway diligent authority.
In those circumstances, should not the first question to ask be how on earth Barlow Clowes came to be granted a DTI licence, which was then bound to be relied upon by financial intermediaries and investors as giving a Government clean bill of health to the scheme? Secondly, does not the Minister have to investigate why the licence was reissued in October 1986 and in October 1987, but investigators were appointed only in November 1987? What warnings were given by NASDIM, the watchdog, and why were they ignored?
Has not the Minister also to ask why the Securities and Investments Board, which took over regulatory functions only in April, was within weeks winding up a company that had for years been sanctioned by the Department of Trade and Industry? Does not the Government's action in harrying social security claimants stand in stark contrast to their action over the years in relation to the City? What guarantees will the Minister give us that no more Barlow Cloweses are hidden? How many more firms are still trading with only interim authorisation under the Financial Services Act?
Finally, is not our most important charge now to do our best for the investors, many of whom are retired or have sunk their redundancy payments into the company, 28 and have been encouraged by the Government to put money into the City? Does the Minister agree that it is vital now that the Government, together with the parent company and the liquidators, consider urgently how arrangements can be made for restitution, so that those who have built up funds by graft and hard work do not find that they are dissipated by greed and worse in the City of London?
§ Mr. Maude
I am grateful for the hon. Gentleman's welcome for the trenchant action—as he described it—taken by my Department today. He prefaced his remarks by saying that he did not expect me to prejudge the outcome of the investigation, and I am grateful for that as well. The hon. Gentleman knows that I cannot do so. I can, however, reassure him that the questions that he has outlined are the sort of questions that will be covered by one or other of the investigations. Some will be covered by the section 432 investigation into the company's affairs; others by the investigation by an independent person, yet to be announced, into what happened in my Department.
The hon. Gentleman asked why it was possible for the Securities and Investments Board to move quickly to wind up the company soon after the board came into formal existence under the Act. The reason is very simple. Under the previous regime, the Prevention of Fraud (Investments) Act 1958, there were not sufficient powers to seize the assets of a company operating in such a way. Action taken too quickly would seriously jeopardise the interests of existing investors, and a difficult balance had to be struck in those circumstances. Whether the right balance was struck will have to be considered by the independent investigator. But it was precisely because of our concern about the extent and range of powers available to regulatory authorities under the previous regime that, in the Financial Services Act, we gave the regulatory authorities a far wider range of powers, which have been used by the SIB in the way that the hon. Gentleman describes.
I of course confirm that the interests of investors are our highest priority, and that we shall do all that we can to safeguard them.
§ Sir Peter Emery (Honiton)
Can my hon. Friend give some assurance to the many investors, particularly those who are retired, who are concerned about the quarterly income that they used to receive from the company so that they could build up their lives in retirement? Is it correct that Cork Gully, the provisional liquidator, has taken control of £51.5 million, but has stated in so doing that it is not yet certain whether there is a deficiency, and whether the funds are adequate to cover all the claims? If it is proved that they are sufficient, will my hon. Friend ensure that payments on the investments are restored as quickly as possible?
Secondly, will my hon. Friend attempt to ensure that, as there is some doubt about how the funds of directors found their way into the directors' control, they will be frozen until the matter has been much more clearly defined?
§ Mr. Maude
I do not think that my hon. Friend will expect me to comment in detail on what the position will be. This is an exceptionally tangled matter, and I fear that it will take some time for the special managers and the liquidators to sort them out. It would not be helpful if I were to speculate about the eventual outcome, but I know 29 that the liquidators and the special managers will want to settle these matters as soon as they possibly can in a way that is as beneficial as possible to the investors.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
But is the hon. Gentleman aware that the £130 million that has gone missing, which involved large sums for the people concerned, is a more serious matter? Will he bear in mind that it is one thing to issue a licence but that it is another thing to reissue the licence after investigation? If the hon. Gentleman reissues a licence, how can he expect the ordinary investing public to regard it other than as absolute confidence in the company concerned? Does not the Department bear a large measure of responsibility for what happened in this case? How does it intend to implement its responsibilities?
§ Mr. Maude
The right hon. Gentleman makes an assumption about the state of the funds and assets that at this stage I cannot possibly confirm or deny. The special managers and liquidators will need to go into that matter. I am sure that the right hon. Gentleman realises that it is an exceptionally complicated matter and that it will not be possible for conclusions to be announced for a little while yet. There was no reissue of a licence after an investigation. In October of last year, inspectors were appointed under section 106 of the Financial Services Act 1986. Following the receipt of their report in April of this year, swift moves were made to proceed with winding up the company.
§ Mr. Tim Smith (Beaconsfield)
Is my hon. Friend aware that the decision that he has announced today to appoint a Companies Act liquidator for the holding company and to hold a special investigation into the activities of his Department is absolutely the right one—in fact, the only possible one in all the circumstances that he has described? However, does he agree with me that an important contrast has to be drawn between the rather feeble powers that were available to him under the Prevention of Fraud (Investments) Act 1958 and the really tough powers that came into force only at the end of April under the new Financial Services Act? None the less, will he confirm that if the investigator finds that my hon. Friend's Department was negligent in carrying out its statutory powers there is a precedent for paying compensation to investors?
§ Mr. Maude
My hon. Friend is absolutely right to say that the Financial Services Act gives the regulatory authorities substantial additional powers to enable them to move quickly to deal with matters of this kind. Those powers did not exist under the previous regime. My hon. Friend is also right to say that, if it were found in the ordinary course of law that my Department was negligent in the exercise of its statutory duty, it would be liable in law for damages. However, I make no prejudgement of that issue. It is precisely for that reason that we want to find out exactly what happened in my Department. That is why we have decided to go ahead with what I hope my hon. Friend accepts is an unusually full and open inquiry.
§ Mr. Jeff Rooker (Birmingham, Perry Barr)
Does the Minister accept that, after nine years of the green light for financial spivs, cases such as this are bound to happen? If necessary, will the Minister extend the inquiry into the particular circumstances of Gibraltar, which is not like the Isle of Man and other offshore islands? The British Government appoint a governor. Gibraltar may be 30 internally self-governing, but if Gibraltar is involved in offshore fund dealings, the British people think that they have been given a cast-iron, copper-bottomed guarantee.
When I visited Gibraltar, eight or 10 years ago, I thought that it was in danger of brass plates littering the high street—that, because of the demise of the docks and the need for other means of generating funds, it would be forced into carrying out offshore island financial activities. Many Gibraltarians did not want that to happen, but it has come to pass. It is only one symptom of this policy. I ask the Minister to extend the inquiry into the particular circumstances of Gibraltar as a financial "offshore island".
§ Mr. Maude
I do not think that the hon. Gentleman does his cause much good by expressing it in the kind of language that he used at the beginning of his question. Under the Financial Services Act, companies based in other countries that do business in the United Kingdom will be subjected to a tougher regime than hitherto. I cannot say that the investigation will look in particular at the regulations in Gibraltar, but no doubt it will throw light on such matters.
§ Mr. Anthony Nelson (Chichester)
Is my hon. Friend aware that, in all the circumstances, his statement is absolutely right? I am sure, however, that he would be the first to agree that this case raises serious questions about Government and DTI supervision of the regulatory process in the investment market and about some of the practices by operators within that market. Does he agree that the principal concern of the investing public at this time must be in the integrity of the market as a whole and that there will be concern, after McDonald Wheeler, that this is yet another example of closing the stable door after the horse has bolted? After examples of this kind, the greatest assurances must be given that the number of rip-off merchants who are still operating in the market is not as great as many people fear. What assurances can my hon. Friend provide for the public?
§ Mr. Maude
Nobody in a position of regulatory authority can ever give an absolute guarantee that all investment companies are safe. That is not possible, no matter how rigorous the regulatory regime may be. The regulatory regime that we now have is exceptionally rigorous. I said earlier that, under the previous regime, the powers were limited. They were not available over as wide a range as was regarded as necessary to deal with cases of this kind. It is precisely for that reason that we extended those powers in the new Act.
§ Mr. Frank Cook (Stockton, North)
The Minister makes great play of the stringency of the regulatory regime, as he calls it, but is it not true that the Government laid great emphasis on the fact that the market should be self-regulatory? Does he not agree that the history of this sequence of events gives a clear signal to any dealer that all he has to do is grab what he can as quick as he can and get out as quick as he can? What does the Minister intend to do to make self-regulation more regulation according to law rather than according to the whim of his Department?
§ Mr. Maude
The new regulatory regime that came into existence no more than six weeks ago is based on the law, the Financial Services Act. It provides exceptionally rigorous powers that have been used in this case. It is precisely because those powers were not available under the previous regime that events took this course. I do not 31 want to say any more. To do so would be to prejudge the outcome of the investigation that I have announced. To suggest that the new regime under the Financial Services Act is in any way less rigorous than that which preceded it is an absurd travesty.
§ Mr. Robert Rhodes James (Cambridge)
I am sure that my hon. Friend is aware that I am not the only Member of Parliament with constituents who have invested a very large proportion of their savings in Barlow Clowes enterprises and who fear that they may have lost them. They want to know as soon as possible what is the real situation and how it will affect them. My hon. Friend referred to this as a "tangled matter" that will require some time to resolve. How long is "some time"?
§ Mr. Maude
I cannot put a time on it, because it does not lie in my hands. It lies with the special managers and the liquidators. As I said in my statement, they have been working solidly all weekend and they will continue to work full time to resolve this matter as soon as possible. We are very much aware of their anxiety.
§ Mr. Matthew Taylor (Truro)
The Minister must be aware of the great concern that is felt by those who have invested in this group. That is quite apart from deciding where the responsibility may lie for what has happened. Will he clarify for them the position of the parent company, James Ferguson Holdings plc, in respect of any claims that may arise? Moreover, in view of the DTI's close involvement, what role will it play in backing up any claims that may be made?
§ Mr. Maude
Answering the latter part of the hon. Gentleman's question would pre-empt the outcome of the investigation. I have announced that we have appointed Companies Act investigators to investigate the responsibility of the holding company. The responsibility will depend on what decisions are taken as a result of the investigations.
§ Mr. Robin Maxwell-Hyslop (Tiverton)
Will my hon. Friend give the House a positive assurance that the internal investigation which he has announced will not be used as an excuse for granting immunity from disciplinary action if it is found that somebody in his Department had failed to carry out their duties properly?
§ Mr. Speaker
Order. I have to have regard to the fact that this is a private Members' day. I shall allow questions for a further 10 minutes, but then we shall have to move on.
§ Mr. D. N. Campbell-Savours (Workington)
Is it not true that the names of four licensed security dealers that I gave the Securities Association—the responsible self-regulatory organisation—last week were all given interim registration by the Securities and Investments Board? When inquiries into the activities of those companies are taking place, will the Minister ensure that, if necessary, they are closed down? Will he also confirm that the last 32 two licensed security dealers that I brought to the attention of the House as acting fraudulently were both closed down by the Government?
§ Mr. Maude
Under the new regime, the cases to which the hon. Gentleman refers are no longer matters for the DTI—they are matters for the Securities and Investments Board and the Securities Association, which should take proper regulatory action. No doubt they will take proper account of any representations that the hon. Gentleman has made.
§ Mr. John Wheeler (Westminster, North)
I am grateful to my hon. Friend for the frankness of his statement. Will he confirm that the sequence of events—it is very important—was that the provisional licence was granted in March 1985, subject to assurances, and the licence was subsequently allowed in October?
§ Mr. Dennis Skinner (Bolsover)
Does the Minister agree that this case, involving another City scrounger being caught in this tangled net, shows that the Government have two faces regarding the treatment of people who are caught by Government Departments? Why, after warnings two years ago, were licences allowed? If somebody claimed a DHSS benefit worth £20 a week, the chances are that one of the Minister's colleagues would have hounded that person within a month, not after two years. Rather than waste the two years, why did the Government not use the power of sequestration which they used against the miners in 1984–85? If the Government can hound the National Union of Mineworkers and follow its money halfway around the world, why can they not do the same to Mr. Clowes? Why do the Government not have one law—for the poor and for the rich?
§ Mr. Maude
I am sure that the House is grateful for the hon. Gentleman's legal advice. Powers of sequestration follow only when there has been contempt of court, and there is none in this case. I have told the House, and I think that the House has accepted, that no such powers existed in this case. Precisely because no such powers existed in this case, we have provided them in the Financial Services Act.
§ Mr. Hugh Dykes (Harrow, East)
Will my hon. Friend confirm that this is a shocking and disturbing story, whose implications are potentially worse than the Guinness saga? Does he agree that it shows once again that, when unsophisticated civil servants, often with classics degrees, try to follow sophisticated dishonest people in financial circles, using the advice of sophisticated honest people in the City—whose advice they often ignore or act upon too late—even with the increased powers provided by the new legislation, they do not act in time to save honest investors? Will my hon. Friend confirm that the directors' movements will now be restricted, pending the full investigation? Will he comment on the Cork Gully inference that £50 million may have been secured and covered, but that it is unsure about the rest?
Mrs. Marjorie Mowlem (Redcar)
Does the hon. Gentleman agree that he would not be prejudging the independent inquiry if he clarified an answer that he give earlier to the hon. Member for Westminster, North (Mr. Wheeler)? He said that a licence was applied for in March 1985 and that it was granted in October 1985. I should like a simple, straightforward yes or no answer to whether the watchdog NASDIM—the National Association of Securities Dealers and Investment Managers—submitted to the Department between March and October its worries and doubts about the company.
§ Mr. Robert McCrindle (Brentwood and Ongar)
I warmly welcome the new regime of self-regulation and congratulate the Securities and Investments Board on the swiftness with which it moved on this matter. Does my hon. Friend agree that a combination of naivety and avarice is always likely to lead innocent investors to be attracted by the type of advertisements which this organisation put in newspapers? Is my hon. Friend satisfied that, when exercising the powers given it by the Financial Services Act, the SIB has taken fully on board the need to control the content of advertisements? Will he confirm that he is satisfied, bearing in mind the fact that this is the second occasion in 18 months which I can recall of the Gibraltar element leading to people losing or prospectively losing their investment, that we are making some progress with consumer protection in that territory?
§ Mr. Maude
Exceptionally detailed advertising regulations for investment business are issued under the Financial Services Act. They are far more detailed and rigorous than was the case hitherto. Under the new Act, a tougher regime applies to investment businesses based overseas which do business in the United Kingdom.
§ Mr. Tam Dalyell (Linlithgow)
If there is no certainty about what will be returned to the creditors, what is the estimate? When do we expect any interim report from the serious fraud office or the police? The Minister said in his statement:In October 1987, in the light of dissatisfaction by the Department with the monitoring returns from Barlow Clowes, and of other information, it was decided to appoint investigators.What was the other information?
§ Mr. Maude
There was information of various types and of varied provenance. I am not prepared to say more than that at this stage. Those are matters that will properly be considered by the independent investigator, and I do not think that it would be helpful for me to go into them now.
The serious fraud office will take such steps as it deems proper at the time it deems them to be proper, and I do not 34 propose to comment further on that. I am afraid that I have forgotten the first part of the hon. Gentleman's question.
§ Mr. Dalyell
In his original statement, the Minister said that there was no certainty about what would be returned to the creditors. I asked him what the estimate is.
§ Mr. Teddy Taylor (Southend, East)
Does my hon. Friend agree that one of the strange and worrying aspects of this business has been the use of funds to buy into or to buy over rather shaky public companies, at prices which at the time were regarded as excessive, through the good offices and on the apparent advice of some of the most respected names and institutions in the City of London? Will my hon. Friend give an assurance that at least one of the inquiries that he has mentioned will try to obtain advice from those institutions about what part they played and what advice they gave?
§ Mr. Maude
I will certainly look at the point raised by my hon. Friend. It may well be that the Companies Act investigation into James Ferguson Holdings plc would be an appropriate vehicle. I shall certainly consider that.
§ Mr. Allen McKay (Barnsley, West and Penistone)
Will the Minister elaborate on a number of points that he has made? About an hour ago, I opened a letter from a constituent, from which it would appear on first reading that his home, his retirement fund and his car are dependent on his investments. I am sure that he is interested in the Minister's new powers, but I am sure that he is more interested in knowing whether he will get his money back, and when.
§ Mr. Maude
As I said, I am well aware of the concerns and anxieties that must exist for investors at the moment. I am afraid that it is not possible at this stage to give any further reassurance. It will be for the special managers and the liquidators to settle the matter as soon as they can. I know that they will be keen to allay those anxieties and concerns, in so far as they can, as soon as possible.
§ Mr. David Shaw (Dover)
While I welcome the points that the Minister makes about the new financial services legislation which undoubtedly improves the disciplines and controls operating in the securities industry, is he really satisfied that small companies that are responsible for managing overseas bank accounts and investments can be relied upon to exercise proper control? From this example, according to press reports, it appears that the United Kingdom funds have largely been recovered, but funds in Gibraltar that have been manoeuvred between Switzerland and other exotic locations seem to have hit problems. Whether they are licensed by his Department or whether they run under the auspices of other regulatory bodies, controlling funds overseas is a really difficult problem, and perhaps his Department should consider it further.
§ Mr. Speaker
Order. There is no procedure for seeking leave to move the Adjournment of the House on a statement. I shall take the hon. Gentleman's point of order in a moment.
§ Sir Peter Emery
Not in answer to a question, Sir, but because of the great concern that exists about the Barlow Clowes group, I wished to ensure that the matter should be raised on the Adjournment at the earliest possible moment.