House of Fraser

HC Deb 07 March 1990 vol 168 cc873-80 3.31 pm

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Nicholas Ridley)

With permission, Mr. Speaker, I wish to make a statement on House of Fraser. I have today published the report of the inspectors appointed under section 432(2) of the Companies Act 1985 to investigate the affairs of House of Fraser Holdings plc.

I should explain to the House that in this matter I have three main responsibilities as Secretary of State: first, to decide whether to publish the report. This I have now done, as soon as possible after I was informed by the prosecution authorities that they had withdrawn their objection to publication.

Secondly, I had to consider whether to apply to the court to disqualify any director under section 8 of the Company Directors Disqualification Act 1986. I have concluded that it would not be in the public interest to do so. Anyone who reads the report can decide for themselves what they think of the conduct of those involved.

Thirdly, I also have responsibility for decisions on whether to refer mergers to the Monopolies and Mergers Commission. That responsibility was fully discharged by my predecessor. He had six months from July 1988 in which to consider the findings of the inspectors' report and to decide whether to refer the matter. He concluded in November 1988 that a reference to the M MC would not be appropriate. The House of Lords held that that was a proper decision. I cannot reopen the decision taken at that time. We have since taken steps in the Companies Act 1989 to make it a specific criminal offence for anyone knowingly or recklessly to mislead the competition authorities.

No other matters require action from me. I have passed the report to all those authorities concerned with enforcement and regulation so that they may consider whether to take action under their various powers.

Ms. Marjorie Mowlam (Redcar)

If a statement lasting for less than two minutes is an indication of the importance that the Secretary of State and his Department attach to an issue as major as this—for we are talking about fraud on a grand scale—we are astonished. Is it not extraordinary that the Department of Trade and Industry is to take no action, despite the conclusions of a 750-page report produced by the Department itself?

The first paragraph of chapter 2 states: The Fayeds dishonestly misrepresented their origins, their wealth, their business interests and their resources to the Secretary of State, the OFT, the press, the HOF Board … and their own advisers. Is it not extraordinary that no action is to be taken, although the evidence received by the inquiry was false —and known to be false—at the time it was provided, and although it is now known that, in the words of the report, it is likely that the Fayeds used … the Sultan of Brunei and the opportunities afforded to them by the possession of wide powers of attorney"? Only constraints on the powers of the inspectors prevented them from discovering conclusive evidence on precisely that point.

Is the Secretary of State seriously telling us that no action is to be taken against any of the people who made those dishonest representations—against the Fayeds themselves, or against their supporting cast, the bankers Kleinwort Benson and the solicitors involved? Apparently, no action is to be taken against anyone who was engaged in the perpetration of—again, I quote from the report— a massive fraud against the Government". Now that we know that the deal was cleared by the then Secretary of State in only 10 days—although allegations that have now been found to be true were known to him, and had been made with considerable vigour—will the Secretary of State explain why the Government insisted on clearing the deal in such a remarkably short time? Why did they not investigate the allegations in more depth? Why did they not fulfil their responsibility to protect the public interest, and why did the Secretary of State's statement not acknowledge the final responsibility that his Department must carry for clearing a fraudulent takeover? [Interruption.] Conservative Members may find it reasonably amusing, but Opposition Members are interested in defending the public interest. Does not the proper protection of the public interest require action a little less casual than a few telephone calls and a statement? Does it not require an in-depth investigation?

What are the lessons for the future? First, does the Secretary of State accept any of the six lessons set out in chapter 25 of the report, including the need for closer supervision and tighter regulation? Will he insist that those lessons are acted on by the regulatory bodies, and present proposals to that effect? Above all, how can the right hon. Gentleman conclude—despite the clear direction in chapter 1 of the report, on page 12, that the directors who gave false information to the inspectors should be disqualified—that it would not be in the public interest to attempt to disqualify them?

Does not the report cry out for a proper monopolies and mergers policy that is not based simply on considerations of competition, but takes account of the wider public interest? It is clear, not merely from his failure to act but from the manner of his doing so, and from today's pathetic statement, that the Secretary of State has abandoned that public interest.

Mr. Ridley

In my statement I set out clearly the extent of my responsibilities in this matter. The House and the hon. Lady can judge for themselves the content of the report and what is revealed therein. The hon. Lady said that the allegations should be investigated, but I advise her that they have been investigated at great length and set out by the inspectors. It is for her to form her own judgment.

The hon. Lady referred to criminal prosecutions. They are a matter for my right hon. and learned Friend the Attorney-General. The hon. Lady now knows that, on the advice of the Directors of Public Prosecutions and of the Serious Fraud Office, he has now decided that no prosecution shall be taken.

The hon. Lady also mentioned the advisers to the various parties in the report. The report has been sent to the Law Society and to the Bank of England. They are the regulatory authorities for those bodies and it will be up to them to decide whether they wish to take any action.

The hon. Lady then asked whether the inspectors' recommendations had been taken note of in relation to various aspects of company law. Under the Companies Act 1989, which the House enacted just before Christmas, no fewer than four major changes, which I will spell out to the hon. Lady if she would like to know what they were, were made dealing with the inspectors' four main recommendations to amend company law.

In two of the cases about which a recommendation to amend company law was made, my predecessor came to the conclusion that no amendment was necessary because the powers were already there. As I said, the main recommendation was that giving false evidence to the competition authorities should now become a specific criminal offence. Giving false evidence to inspectors is already a criminal offence—and has been for some time. Whether prosecutions arise under those two powers is for the prosecuting authorities, not for me.

It is not my intention to change the terms of reference of the Monopolies and Mergers Commission. This matter would never have come before the Monopolies and Mergers Commission in the first place if issues of competition had been the sole guidelines, subject, of course, to the national interest considerations, which were to be considered by the Monopolies and Mergers Commission in the case of a possible reference.

Mr. Paul Channon (Southend, West)

Is my right hon. Friend aware that he is not the first Secretary of State to be involved in this matter, and that he can take no blame for this situation? However, will he tell the House a little more, first, about the position of the advisers? Is he satisfied that, as it stands, the law deals fully with the recommendation in the report about the conduct of advisers in these difficult circumstances?

Secondly, will he tell us a little more about disqualification and why he has concluded that it would be unwise to use his powers to disqualify in this case? How would the disqualification work in the case of this particular public company? Would it have a major effect on it? How would it work in this case if those criticised in the report were disqualified from being directors of a public company?

Mr. Ridley

I am grateful to my right hon. Friend. I confirm that the advisers concerned are subject to their own regulatory regimes—to the Law Society, the Bank of England or others in investment and banking matters. It is for those authorities to decide whether any action is necessary as a result of the publication of the report.

My right hon. Friend's second question was about disqualification. I shall give him a full answer. Under section 8 of the Company Directors Disqualification Act 1986, I may apply to the court for a disqualification order if I consider that it is expedient in the public interest for a disqualification order to be made. I have considered the matter carefully and have concluded that it would not be in the public interest to seek such an order in this case. Those who read the report can make their own assessment of the conduct of those involved. The provisions of that act are intended not as a punishment, but as a protection for the public. I can add nothing further to that.

Sir David Steel (Tweeddale, Ettrick and Lauderdale)

Does the Secretary of State agree with the finding of the report in chapter 23 that it is in the public interest that the confusion which occurred in this case should not occur again? It appears that that is precisely what he will allow. Does not the report show that every fail-safe mechanism set up by Parliament to protect the public in free and fair commerce failed in this instance, disastrously trimmed as the mechanisms were in July 1984 by his predecessor, the right hon. Member for Chingford (Mr. Tebbit)? Does the right hon. Gentleman realise that, if he continues to take no action he will be condoning a money-laundering charter which could be used in future by any Mafia godfather or international drug baron who cares to use it in the same way?

Mr. Ridley

I cannot go into the wider views which the right hon Gentleman mentioned at the end of his supplementary question. The purpose of company law and inspections of the sort that we are discussing is to protect the interests of shareholders. The shareholders of the original House of Fraser board were paid in full in cash. The only shareholders of House of Fraser Ltd. are now directors; there are no outside shareholders. In no respect are the interests of the public, to which the right hon. Gentleman rightly drew attention, not protected by the present arrangements.

Mr. Norman Tebbit (Chingford)

Will my right hon. Friend accept my thanks for finally publishing the report? Does he accept that many of us regret that the decision was made that it could not be published earlier? After all, in more recent times the directors of National Westminster Bank and others have been prosecuted after the publication of a report. As the report is large and we have only recently seen it, could he direct the attention of hon. Members to any page in which there is criticism or culpability alleged of either the Director General of Fair Trading, whose advice Ministers at the Department of Trade and Industry took, or, indeed, of Ministers at the Department of Trade and Industry?

Mr. Ridley

Perhaps I am fortunate that I have been able to publish the report so relatively early in my stewardship of the Department. I have sympathy with my predecessors, who were constrained by the need to make sure that the prosecuting authorities were content. I received that clearance only last week. Nowhere in the report have I seen any criticism of the conduct of the Director General of Fair Trading, my predecessor or junior Ministers in the Department ever since the beginning of the affair.

Mr. Robert Sheldon (Ashton-under-Lyne)

By lying and cheating, the Fayed brothers fooled the Office of Fair Trading, the Monopolies and Mergers Commission and the Department of Trade and Industry. Why are they to be allowed to remain in full possession of the assets that they have dishonestly acquired and in the process thumb their noses at the Government?

Mr. Ridley

The right hon. Gentleman should put that question to my right hon. and learned Friend the Attorney-General, who is responsible for prosecutions.

Mr. Anthony Nelson (Chichester)

Does my right hon. Friend agree that the report has opened a can of worms which exposes the serious shortcomings of investor protection and the enforcement of company law? Why is it not serious fraud to lie about exactly who is taking over whom? With regard to directors ceasing to be directors, if the criticisms in the report do not amount to sufficient justification, surely that makes a mockery of company law which imposes those obligations on directors. Instead of the old adage and reliance on "My word is my bond", we probably need tougher city regulation, tighter legal enforcement of standards of disclosure and some divestment. Rather than taking people off the board and allowing ownership to be retained, we should make it hurt where it really hurts, which is in the ownership of the company.

Mr. Ridley

My hon. Friend, for whom I have the greatest respect, is as astute at spotting a can of worms as anybody, and I shall rely on him coming to a decision on the report. He will forgive me if I remain neutral in my comments on what he has said [HON. MEMBERS: "Why?"] I have already said that the DPP and the director of the Serious Fraud Office are responsible for deciding whether to take criminal prosecutions. They have concluded not to do so. I cannot go beyond my powers. There are some lessons for some authorities, particularly in the City, which I hope they will learn from studying the report. Many of them received it only this morning and we shall await whatever they decide to say or do in due course.

Mr. Michael Foot (Blaenau Gwent)

The Secretary of State failed to reply to the question of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). Can he tell us why the Attorney-General has not bothered to come to the House today for the statement? Is that not part of the casual way in which the Government treat the whole matter? Will the Attorney-General come along at some stage to answer the question put a few minutes ago?

Mr. Ridley

The right hon. Gentleman is skilled and experienced in this House, but perhaps he has not noticed that my hon. and learned Friend the Solicitor-General is on the Treasury Bench. My right hon. and learned Friend the Attorney-General is available to answer questions in this House at his appointed time. Any hon. Member who wishes can put questions to him either orally or in writing.

Sir Peter Tapsell (East Lindsey)

Although advisory organisations to the House of Fraser are subject to outside regulatory bodies, is it not in effect the case that my right hon. Friend is the regulatory body that controls the behaviour of company directors? Does he appreciate that many of us inside and probably far more outside the House are astonished that he will not take action to disbar those directors of House of Fraser who have been so seriously criticised in the report?

Mr. Ridley

I cannot add to what I have said about that matter. [HON. MEMBERS: "Why not?"] I have judged it not to be in the public interests for a variety of reasons after considering carefully all the available evidence.

Mr. D. N. Campbell-Savours (Workington)

Is it not true that chapter 25 of the report reveals that non-corporate offerers are not required under the takeover panel code to provide information about their financial background? [Interruption.]t is what it says in the report. If the argument is about the takeover of Harrods, who is the greater villain: Muhammad Ali—[Laughter.]

Mr. Speaker

Order. An understandable mistake.

Mr. Campbell-Savours

Is the greater villian Mr. Al-Fayed, who has clearly been economical with the truth about his background—indeed, something which many international business men have practised over the years —or Mr. "Tiny" Rowland, who was the subject of a report in the late 1970s which led Treasury counsel to the Department of Trade and Industry to say that he should be prosecuted on four counts, including larceny under the Theft Act 1968, the exchange control legislation and the Southern Rhodesia (United Nations Sanctions) Order 1968? Is is not true that Mr. Rowland repeatedly committed offences, yet today tries to convince the British people that he should have been given the right to control and buy Harrods? Clearly justice may not appear to have been done, but to some extent it may have been done.

Mr. Ridley

I sympathise with the hon. Gentleman on his slight slip of the tongue, but I do not think that anyone would believe that the events that we are talking about are particularly heavyweight. I agree with what he says about non-corporate purchasers—that is in the report.

It is for right hon. and hon. Members to form their own views on the account of events in the report. The report has performed an important function in giving the most information possible about what happened. What the hon. Gentleman has said shows that it is possible to form two judgments about the matter.

Mr. Robin Maxwell-Hyslop (Tiverton)

Will my right hon. Friend confirm that the investigation under section 432(2) of the Companies Act 1985 was pursuant to a public general Act and that, therefore, if any person knowingly and wilfully makes … a statement false in a material particular even though not on oath, that person has committed perjury under section 5(c) of the Perjury Act 1911? That Act is still in force and was in force throughout the proceedings.

Mr. Ridley

I confirm that my hon. Friend is correct in saying that it is a criminal act to make false statements either to DTI inspectors or to any officer of the law.

Several Hon Members

rose——

Mr. Speaker

Order. The House knows that we have an important debate to follow. I shall take three more questions from either side of the House, then we must move on.

Mr. Peter Shore (Bethnal Green and Stepney)

The House will understand the Secretary of State saying that the matter of prosecution for fraud is for his right hon. and learned Friend the Attorney-General. What the House does not understand, however, is what conceivable matters of public interest prevent the Secretary of State from exercising his own statutory obligations to decide whether the Al-Fayed brothers are fit and proper persons to be directors of that major company.

Mr. Ridley

I have already given an answer to that question, and I repeat that there are no outside shareholders of the House of Fraser company. If anyone wanted to appoint the persons concerned to his board, he would have available to him the contents of the report before deciding to do so. That report represents protection for shareholders in the future, but I repeat that there are no outside shareholders at present.

Mr. David Ashby (Leicestershire, North-West)

Is my right hon. Friend aware that there is a deep sense of frustration on the Conservative Benches that these crooks should be allowed to get away with it? Does he not realise that the Al-Fayeds control assets in a public company and that, from that position, they will be able to acquire other assets in this country? Is he also aware that we do not feel that these people should be in this country any more? They have obviously perjured themselves about their backgrounds and they should be deported as undesirable aliens. We do not want them here; they are crooks.

Mr. Ridley

The question of prosecution is not one for me. I cannot comment on my hon. Friend's views about immigration policy and deportation. That is not for me but for the Home Secretary.

Mr. Harry Ewing (Falkirk, East)

Is the Secretary of State aware that he does the House no favours in his replies by falling back continually on the defence that this is a matter for the learned Attorney-General? The right hon. and learned Gentleman is not here to make a second statement so that both sides of the House may question him about the reasons for his decision.

The Secretary of State should appreciate that the decision on this matter will be viewed differently outside the House from the apparent way in which he views it. The right hon. Gentleman has had no support from his Back Benchers. Outside the House, people who are pursued for social security frauds with all the vigour of the law will see that, yet again, there is one law for the rich and another for the poor; or, in the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), that this is the unacceptable face of capitalism.

Mr. Ridley

The hon. Gentleman must form his own view about those matters, but I would not advise him to use the word "fraud" outside the House, because that is a matter which should be decided by the prosecuting authorities. I cannot answer for my right hon. and learned Friend the Attorney-General.

Mr. Teddy Taylor (Southend, East)

I congratulate my right hon. Friend the Secretary of State on publishing the report, the contents of which more than justify the almost obsessive campaign by a company chaired by one of our former colleagues. Is not my right hon. Friend's major problem today the fact that most of the doors to possible action on the content of the report were locked before he arrived at the Department, in particular the reference to the Monopolies and Mergers Commission? However, can he at least say that, as Harrods bank deals with the general public, it would be quite offensive to the public if the Bank of England continued to authorise that bank? A bank should be authorised on the basis of its directors being fit and proper persons. I fully appreciate that there is not much that the Secretary of State can do now because the doors have already been locked, but will he at least ensure that Harrods bank no longer has the dignity of being authorised by the Bank of England?

Mr. Ridley

That is a matter for the Bank of England, which regulates bankers and has the power to decide whether the directors of any bank are fit and proper persons to control it. My hon. Friend should direct his question to the Bank of England.

Mr. Brian Sedgemore (Hackney South and Shoreditch)

How is it that honest merchant bankers Kleinwort Benson could conspire with Herbert Smith and Co., a firm of solicitors of the highest integrity, and the Al-Fayed brothers, legendary seekers after the truth, to commit a massive fraud on the British Government when the person charged with sifting the evidence was none other than the right hon. Member for Chingford (Mr. Tebbit), who is renowed for his judgment of character, financial acumen and genius for taking the right decisions? What political debts were being repaid when that episode in sleaze and slime took place?

Mr. Ridley

I am always grateful to the hon. Gentleman for his generous, full-hearted and jovial approach to these matters, but no question for me to answer arises from what he has said.

Mr. Kenneth Warren (Hastings and Rye)

I welcome the publication of the report at last, but may I draw my right hon. Friend's attention to chapter 25, dealing with lessons to be learned, in which it says: the arrangements for deciding … a controversial bid put intolerable strain on the OFT and the DTI who found themselves obliged to perform a role for which they were not equipped"? Who will guard the public against these crooks? Could not the whole affair have been torpedoed at the start by getting Kleinwort Benson to justify its claim that the Al-Fayeds had got the money when they had not?

Mr. Ridley

My hon. Friend touches on a matter for which I should pay tribute to my right hon. Friend the Member for Chingford (Mr. Tebbit), who changed the criteria for reference to the Monopolies and Mergers Commission of mergers and acquisitions so that the prime consideration was one of competition rather than wider matters, which were the cause of the original reference of this matter to the MMC. That important and welcome change will make the job of the director general much easier and will not have got the House involved in such matters, which have nothing to do with competition.

Several Hon. Members

On a point of order

Mr. Speaker

Later.