HC Deb 17 July 1996 vol 281 cc1112-21 1.30 pm
Mr. Peter L. Pike (Burnley)

I am glad once again to have the opportunity to raise issues relating to the Belling pension fund and to concentrate on issues that should have given us a red light and warning signals long before Belling finally went bankrupt in May 1992.

This is not the first debate that I have initiated on the Belling fiasco—I should call it the Belling fraud. Many former employees of that group will not get their full pension entitlement as a result of the frauds that took place. Mrs. Eileen Smith, the secretary of the pensioners' association, made it clear in a letter of 3 July to McKennas, the solicitors working with the Law Debenture Trust Corporation—the trustees—that the pensioners do not accept the liquidator's offer of £2 million.

Mr. Wignall—one of the people representing the workers who live in my constituency, although he lives just over the border in Accrington—recently received a letter from the pensions ombudsman, stating: There are … 60 other cases ahead of yours in the 'queue'. He had requested that the pensions ombudsman investigate the problems relating to the Belling pension situation.

I accept that the Belling problem is not of the same size or extent as the Maxwell fraud, but to those involved, including many of my constituents, the effects are just as serious and the Government need to respond in a similar way. My constituents will not accept the view that Ministers have put forward that, because fewer people are involved and the scale is not the same, they should be dealt with differently.

I shall attempt to focus on how Belling was able to continue to trade when it was insolvent and to ask why the Department of Trade and Industry failed to pick that up and to stop it trading. Members of the pension fund feel that the Department has failed adequately to study what has happened since the crash of May 1992. It is the view of the pensioners' association that action could and should have been taken under the 1986 legislation. The association states that it is now certain that all the evidence in the possession of the liquidators, receivers and trustees had not been passed to the Department, as is required by law.

The issue is not of concern to my constituents in Burnley alone—indeed, a number of hon. Members have responded to their concerned constituents on the subject and another 37 have signed early-day motion 338 on the issue.

On 24 January, Charles Deacon, a lawyer, and Keith Fuller, a business man, were found guilty of swindling the pension fund of more than £2 million. The BBC special "Money Box" programme of 29 January highlighted the incredible frauds committed by Charles Deacon—Belling was not the only victim. The Minister has had a transcript of that programme. Anyone who did not see it would find that swindle and the others that Charles Deacon committed incredible and outrageous—they even involved using the name of the President of the United States.

The Deacon fraud was not the only one to which the Belling pension fund was a victim, although that would have been serious enough. Others within Belling were guilty of at least serious incompetence and, in the eyes of many, of fraud. Mr. Richard Belling did a last-minute deal in an earlier court case to save himself from having to go to trial. I cannot say that he was guilty of any criminal offence, but he was certainly guilty of incompetence and perhaps of desperation in trying to save his company in a way that did not add up legally and was not viable. As a result of those actions, the pensioners and those with deferred pensions stand to lose.

On 29 February, the Under—Secretary of State for Trade and Industry, who is to reply to the debate, kindly met the hon. Member for Edmonton (Dr. Twinn) and myself.

Dr. Ian Twinn (Edmonton)

I am grateful to the hon. Gentleman for giving way and I congratulate him on his work on behalf of the pensioners, not just in his constituency but throughout the United Kingdom. Colleagues on both sides of the House have written to both of us, expressing their deep concern about what has happened. I am pleased that he mentioned the Maxwell fraud, because although the scale is different, for the individual pensioner's concerned it is the same. Hon. Members should be concerned about what happened.

The fact that someone can help themselves to pensioners' money must remain of great concern to my hon. Friend the Under-Secretary of State as well as to the House. I hope that because of this debate we will hear more about what can be done to stop such frauds taking place.

I wonder if the hon. Gentleman—

Madam Deputy Speaker (Dame Janet Fookes)

Order. That was far too long for an intervention.

Mr. Pike

Thank you, Madam Deputy Speaker, but I nevertheless welcome the comments by the hon. Member for Edmonton and agree with everything he said. His intervention shows that this is not a party-political issue, which is important. Hon. Members on both sides of the House are equally concerned about pensioners losing what they are entitled to as a result of such actions.

At my meeting with the Under-Secretary of State, I gave him a dossier that Mr. Wignall presented to me. Along with Mr. Conquest, he has kept me fully briefed on this complex case. They are both members of the pensioners' association that represents the workers involved. To give all the facts that I have on my files relating to the case, I would need several hours and not just a quarter of an hour.

On 19 March, the Minister replied to me in writing on several matters that I had put to him at the meeting. He wrote: it is for the liquidators of the company to form a view as to whether The Midland Bank acted beyond their remit and in effect directed the company's affairs. If they did and could be shown to have acted as a shadow director, the liquidator of the company could, if he thought it commercially prudent, apply to the court for an order that the bank contribute to the company's assets in the liquidation which would in turn lead to a larger dividend for the pension fund. However only the liquidator has the right to make such an application and it is for him to consider the extent of the bank's involvement in the company's affairs and the costs and likelihood of success of any action against the bank. We also discussed at the meeting the level of compensation awarded by The Law Society. I understand that on their solicitors' advice, the trustees have accepted £577,000 by way of compensation from The Law Society together with payment of their legal costs. The sum is considerably less than the losses suffered by the pension fund as a result of the fraudulent activities of Mr Deacon and his associate and I would have been pleased to have seen a substantially higher level of compensation paid. However any settlement is a matter for the Trustees and the Law Society. I have asked my officials to find out what the current position is relating to any disciplinary action which may be being taken or contemplated against the other professionals who were involved in the Belling affair and I will let you know the outcome of their enquiries as soon as possible. I have written to the Law Society on several occasions, putting the case that its compensation should have been higher, having regard to other legal advice given to the pension fund and Belling at the time, and not solely the role of Mr. Deacon. Regrettably, the assistant director of the Law Society turned down that request, saying: My office has recently been in correspondence with Mr J Wignall who has raised the point that inadequate advice was apparently given to Mr Stewart by Messrs Vanderpump and Sykes as well as by Messrs Barlow Lyde and Gilbert. Regrettably, the opinion of this office is that any such alleged negligence would have no material effect on the Committee's decision. Section 36(2) of the Solicitors Act 1974 sets out the statutory limitations of the Fund which are to compensate an applicant for loss suffered as a result of the dishonesty of a solicitor or for hardship being suffered as a result of a failure by a solicitor to account for monies. When reaching their decision, the Committee were of the opinion that the former Trustees of the Pension Fund had acted both in breach of trust, as they had previously been advised that they could not borrow money from the Pension Fund for the purposes of the Belling Company, and acted negligently in failing to take adequate steps to protect the money that they were improperly borrowing. If either of these failures has its roots in inadequate or negligent legal advice taken by the former Trustees then that may well give a separate course of action against those giving the advice and in respect of which an indemnity should be afforded to the firms concerned by the Solicitors Indemnity Fund". The process goes on and on but pensioners see no solution to their problem.

In another letter of 25 April 1996, the Minister said: As to action by regulatory bodies, the Institute of Chartered Accountants in England and Wales is still considering complaints made by Mr. Wignall against Mr. Keevil of Hereward Phillips, the auditors and Mr. Stewart, a director of the company. However, it does not appear that any disciplinary action is being taken by other regulatory bodies against their members in this matter. It is not surprising that members of the pension fund feel aggrieved. They feel that the professionals and professional bodies have failed them. They are aware that recovery expenses to date total £2,281,185, with some £900,000 having gone to the lawyers. They believe that the Insolvency Act and Company Directors Disqualification Act 1986 have served no useful purpose.

We must consider the way in which costs mount in trying to recover moneys. Again, I do not make a political point when I say that, but it is wrong that people who have committed no offence should have to bear such costs to secure their entitlements.

In March 1993, a list of matters for investigation was presented to Buchler Phillips by pension fund members. Time after time, information has been presented to everyone and all the relevant organisations involved. It is clear to everyone that Belling was bankrupt long before May 1992, and it should have been clear that fraud had been committed in trying to save the company.

I shall take a little time to give a few of the indicators that point to that knowledge, but there is a great deal of other information on our files. In order to be brief I shall use the information that until relatively recently was confidential and therefore unavailable to me, the Department and others.

In the auditors' report from Hereward Phillips dated 22 October 1991, the auditors stated that the company had incurred a loss… £6,405,369… during the nine months ended 29 December 1990; and at that date its current liabilities exceeded its current assets by £1,482,345. Regrettably, the auditors were unable take into consideration the fact that the proposed sale of Compound Sections, which they believed would improve Belling's situation, was the subject of fraud using pension fund moneys.

Indeed, the next auditors' report of 3 December 1991 stated: Following this sale revised borrowing facilities were made available to the company by its bankers. Yet no reference is made to the £2.1 million towards this sale from the pension fund. As had been stated in Peat Marwick's report to the trustees only a month before, this money was used in the sale and paid directly to the bank. To be exact, the pension fund bought Compound Sections, and of this money £2.75 million was used to repay the bank and to extend banking facilities. Clearly the trustees were acting in the interests of the company and Midland bank and not in the interests of pension fund members in agreeing to use funds in this way.

Mr. Stewart and Mr. Belling were guilty of allowing this to happen—indeed, of enabling it to happen. On 22 October 1991, Belling wrote to Vanderpump and Sykes, solicitors: In view of the results for the year the auditors have felt it necessary to qualify the audit report. However if by the time they are required to sign their audit report the sale of Compound Sections Limited, and confirmation of on-going financing from the Midland Bank plc are both available, then they have confirmed that they would be able to give a clean audit report, without qualification. Is it not strange to allow the sale of a subsidiary at an inflated price to its own pension fund to secure an unqualified audit statement? One must ask, why did the trustees agree to such fraudulent use of the fund, and why did the auditors accept the financial statements?

In a letter dated 10 December 1991, Mr. Stewart says that the pension fund trustees have had two independent reports prepared for them in relation to the acquisition of Compound Sections. One of these, from Greig Middleton, advised the trustees: The value of Compound Sections if sold on an open market as a going concern would be in order of £5.25 million, on the basis of a willing buyer and a willing seller. That proved to be far from the true value because the company was ultimately sold for £1.25 million. Belling was its major customer. On 2 December the Belling pension fund paid £5.5 million for Compound Sections. In the letter of 10 December Mr. Stewart says: As part of the contract between Belling and Co Ltd and the Belling Pension Fund for the sale of Compound Sections Ltd Belling warranted a profit of not less than £750,000 for both the years 1991 and 1992. In the event that this profit is not achieved Belling will pay to the Pension Fund a 7 times multiple for the shortfall in 1991, and a 31 times multiple of any shortfall in 1992 subject to a maximum of £1.25m in respect of each year. It is not even as though the trustees had not been warned about using the pension fund for such a loan. In a letter dated 19 September, Harlow, Lyde and Gilbert, solicitors, stated: We do not believe that the trustee has the power under the Trust Board to make loans and take security therefore. The Trustees must determine that the investment will benefit the fund and will not place at risk the part of the fund so invested. We are concerned, given the relationship of the Company to the fund that some doubt may be cast upon the exercise of the trustees' power to invest in the manner proposed. The solicitors also express alarm about the valuations of Belling, stating that, at £14 million, it is grossly inflated. Indeed, they go into great detail about the relationship with the bank and further show that the valuation was unrealistic.

On 21 September 1990, Barlow, Lyde and Gilbert again confirmed: Counsel is in no doubt that the Trustees are not empowered by the Trust Deed to make loans and take security… At law, investments made by trustees on the security of property must be secured by first mortgages. The Trustees will appreciate therefore, that even if we assume that the valuation of £14 million expressed in the valuation of May 1990 is accurate… and given that Midland Bank plc require priority of £8.5 million the maximum amount of any loan would be approximately £833,000 if the Trustees are to have benefit of this provision. Any such loan should be secured by a first mortgage. Unless the company discharges the first mortgage in favour of Midland Bank plc, there are substantial doubts as to whether the trustees can properly invest in the Company in this way. The closing tone of the letter warns: if the Trustees have any doubts whatsoever about the solvency of the Company, any investment in the Company should be avoided. It is possible that if the Company became insolvent within the term of the loan the monies advanced may be irrecoverable and any security granted would be liable to be set aside. The closing advice stated: Having had the benefit of Counsel's view in relation to the issues which we perceive in this transaction we cannot recommend that the Trustees invest in the company at this time. Yet, in a letter to Midland bank in April 1991, referring to the purchase of Compound Sections, Mr. Stewart stated: We have now received Counsel's advice that it is legally possible for the Pension Fund to acquire this property. This amends our earlier understanding of the provisions of the Pension Trust Deed. The Pension Fund Trustees… are now arranging for the appropriate professional advice. Where did that contradictory advice come from, or had the trustees disregarded the advice given to them?

In a letter dated the same day to the corporate bank manager of Midland bank, Mr. Stewart instructed the trustees that the bank as a condition of advancing further monies to the Group have requested that any surplus monies resulting from the winding up of the Pension Fund should be paid into the account of Belling and Company Limited with the Midland Bank. The bank requires an irrevocable confirmation from the Pension Fund Trustees that they will do so. Mr. Stewart's final assertion in this letter shows just how serious the company's position was at this time: It is one of the conditions which the bank is requesting before it is prepared to advance further financing to the Company, without which it will be difficult for it to continue to trade, thereby putting the livelihood of the members of the Fund at risk. The following month, Mr. Stewart arranged to meet Mr. Deacon to discuss a substantial loan of $50 million, interest of $3.5 million on which had to be paid up front and is shown as a borrowing, without authority, from the pension fund on 30 June of £2.3 million.

Despite a worsening scenario, Mr. Stewart again wrote to the trustees of the fund on 1 July 1991 asking for the pension fund to pay surplus moneys into the company's account. He ended his letter saying: You will understand that without the support of our Bankers it will not be possible for the Belling Group to continue to trade". One must ask how Belling continued to trade for another 18 months—nearly two years—before it went bankrupt. Warning bells should have sounded and the Department of Trade and Industry should have acted. Many professional organisations and advisers failed to give the necessary signals and act properly. It is a disgrace that ordinary honest working people have lost out on their pension entitlement as a result of what took place in those sad events of 1990, 1991 and 1992.

1.50 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Phillip Oppenheim)

I congratulate the hon. Member for Burnley (Mr. Pike) on securing this debate on a matter with which he has been closely concerned, as has my hon. Friend the Member for Edmonton (Dr. Twinn), and which has been the subject of much consideration.

In responding to the debate I begin by extending my, and the Government's, sympathies to those who have been affected by the failure of Belling and Company Ltd. and the apparent shortfall in that company's pension fund. I am aware of the distress and anxiety caused by the circumstances of this case.

Occupational pension schemes are established under trust law and it is therefore for the scheme trustees to decide which, if any, legal actions to pursue and to take action on the legal costs likely to be incurred. That is exactly what has occurred in this case.

For the hon. Gentleman's information, Department of Trade and Industry officials have been told by the trustees that, on their solicitor's advice, they have now accepted £577,000 by way of compensation from the Law Society together with their legal costs. They have also recovered £200,000 from the former directors of Belling—£40,000 from Mr. Stewart and in excess £150,000 from Mr. Belling. Inclusive of offers that have been made for settlement, recoveries for the pension fund should total approximately £3.43 million.

I am also pleased to say that the actuary's latest projections are more optimistic than hitherto in that members who were pensioners on 12 February 1993, the date on which Belling went into liquidation, will continue to receive benefits in full. For other members, benefits earned before 31 March 1988 will be able to be provided in full, and guaranteed minimum pension benefits which relate totally to service after 31 March 1988 when the plan was contracted out will also be able to be met in full.

Benefits earned after 31 March 1988 in excess of the guaranteed minimum pensions are not likely to be able to be provided in full. However, I emphasise that the guaranteed minimum amount will be provided. That category of benefit comes last in line and the uncertainties remaining as to the final position of the pension fund make it difficult to predict how much, over and above the guaranteed minimum, will be paid.

The facts concerning the important issue of directors' disqualification are as follows. On 29 May 1992 two insolvency practitioner partners of KPMG Peat Marwick were appointed joint administrative receivers of Belling and Company. The administrative receivers were appointed by the company's bank, the Midland bank.

The Company Directors Disqualification Act 1986 provides that where a company goes into administrative receivership and voluntary liquidation among other insolvency proceedings the insolvency practitioner concerned has a duty to report to the Secretary of State if it appears that the conduct of any director makes him unfit to take part in the management of a company. In order that the insolvency practitioner can have time to consider all the relevant facts the legislation allows him up to six months to make his report.

In the case of Belling, the joint administrative receivers submitted a report in December 1992 and subsequently the joint voluntary liquidators submitted an interim return on 30 September 1993 as at that time they did not have sufficient information to form an opinion as to the directors' conduct. That report was finally received by the disqualification unit on 29 July 1994.

I can confirm that the administrative receivers, but not the voluntary liquidators, did identify what they considered to be aspects of misconduct on the part of the principal directors, Mr. Belling, Mr. Clifton and Mr. Stewart. Those gentlemen were also directors of Belling Pension Fund Ltd., a trustee of the Belling Company Ltd. retirements benefits plan, and Mr. Belling was also a trustee of the pension fund in his personal capacity.

The reports submitted by the administrative receivers and voluntary liquidators were considered most carefully by the Insolvency Service's disqualification unit. Those reports raised questions about the directors' conduct, but they did not provide sufficient evidence to justify disqualification proceedings being taken against them. Any proceedings would have had to have been commenced within two years, that is, by 28 May 1994.

I emphasise that disqualification orders are made for the protection of the public but they also penalise the directors concerned. The courts therefore require a very high standard of proof before they will make a disqualification order. The Secretary of State must, therefore, decide, on the balance of probabilities and on the basis of the facts of each individual case, whether it is expedient in the public interest to commence disqualification proceedings. It would not be a proper exercise of his discretion to proceed where a sufficient case could not be made out.

In securing the passage of the Insolvency Act and the Company Directors Disqualification Act, the Government gave a statutory form to their commitment to ensure that those who abuse the privilege of limited liability—through wrongful trading—can be made personally liable, or can be prevented from enjoying that privilege for a set period by being disqualified. That power is used extensively and more than 3,000 individuals who have been disqualified bear witness to that. However, in all cases there was sufficient evidence to show that they should be disqualified, which was not so in this case.

The protection of pensioners is crucial. Since the Maxwell and Belling cases, the Government have secured the passage of the Pensions Act 1995, which should ensure that all pension schemes are properly run in the interests of their members, and that if a fraud such as that perpetrated in the Belling case occurs the scheme will receive compensation. Therefore, the Government have acted on behalf of pensioners as a result of the Maxwell and other cases. Action can be taken against trustees and directors only if they prove to be seriously negligent or fraudulent, which was not possible in the Belling case. It was open to the liquidators or the pensioners to take action if they felt that they had a strong enough case.

The real villains of this piece, Mr. Deacon and Mr. Fuller, have been appropriately dealt with and the efforts of the trustees in recovering money for the pension fund have brought about a significant improvement in the financial position. I do not see what further action my Department could take at the moment to improve the position of the pensioners on whose behalf the hon. Member for Burnley and my hon. Friend the Member for Edmonton have argued so eloquently in the House and at meetings in the Department.

It seems that the effects on the Belling pensioners will not be as severe as was first thought and that they will all receive, at the very least, the minimum guaranteed amount, and, in most cases, an amount in excess of that. I take this opportunity to wish the trustees well in their efforts to restore the fund to as near a solvent position as possible.

It being two minutes to Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.