§ Motion made, and Question proposed, That this House do now adjourn.-[Mr. Betts.]2.32 pm
§ Dr. Rudi Vis (Finchley and Golders Green)
Unfortunately, I cannot be brief, so I shall try to be quick. I will also read out quite a bit of information, as I want the record to be entirely straight in its details of dates, times and names, of which there are a few. I was going to say also that I would not take interventions because I wanted to make sure that the record was full. However, that will not now be necessary.
The debate concerns the regulation of insolvency practitioners, with special reference to Heritage plc. The Government have promised repeatedly to help small businesses to survive and prosper, and I welcome that. However, there are contrasting interpretations of existing legislation. That is particularly the case when it comes to the excesses of the insolvency industry, as practised by the banks and their servants the insolvency practitioners.
Through the greed and questionable practices of those practitioners, operated with impunity, many small and medium-sized companies are needlessly closed; their directors — who frequently have put all their personal assets on the line—thrown out of work; and their families thrown on to the streets to become an extra burden on the taxpayer.
According to figures provided by the Independent Banking Advisory Service, if all banks followed the example set by the Royal Bank of Scotland and separated the roles of reporting accountants and receivers, 44,700 jobs a year would be saved. Meanwhile, the insolvency vultures continue to earn fat fees.
Lord Sudeley referred to the case of Heritage plc, Lloyds TSB and Grant Thornton in the Lords debate of 26 January 1999. Heritage plc was quoted on the London stock exchange. It operated in east London and Manchester, supplying major retailers in the United Kingdom with household articles. It employed more than 100 people, many of whom were disabled. The former chairman, Mr. Jeffrey Lampert, was my constituent until Lloyds TSB succeeded in evicting him and his family from their home.
The case perfectly reflects the unchecked excesses of the sharks to whom I have referred. Before coming to me, Mr. Lampert took the Heritage plc story to the Bank of England, which said, "This should be dealt with by the banking ombudsman." The ombudsman, hearing that the company's turnover was more than £1 million a year, said, "It's not for me, go back to the Bank of England," which then said, "Go to the FSA," which said, "It's not us; we don't consider individual cases. Go back to the Bank of England." The Bank of England had no further comment at that stage.
Mr. Lampert went to the London stock exchange, which referred him to the Department of Trade and Industry D2 prosecutions section, which concluded:taking account of the code for crown prosecution it is not in the public interest to instruct an officer to conduct an enquiry.I am satisfied that the statutes are in place, but they are not being interpreted in a way that protects businesses and jobs from the excesses of the insolvency industry. 1267 In December 1996, Mr. Lampert approached Peter Ellwood, currently Lloyds TSB group chief executive, and his approach proved similarly fruitless. Mr. Lampert has personally banked with Lloyds for more than 40 years —truly a case of "Your Life Your Bank", as the soft advertising campaign says. The facts about Lloyds TSB are different from the image that it seeks to create. I have statistics showing that the Independent Banking Advisory Service receives 36 times more complaints about Lloyds TSB's integrity, which is well defined, than about the Midland bank's.
Apart from the fact that Heritage plc was quoted on the London stock exchange, its case is reasonably typical. Heritage banked with Lloyds from its inception and the bank sponsored it onto the London stock exchange in July 1988. As a result of that flotation, as one would expect, Heritage embarked on a series of acquisitions, advised by the bank. Despite what the directors believed was a long, close and mutually trusting relationship, Lloyds TSB suddenly closed down Heritage plc. The only logical reason for that action, which did not emerge until two years later, was to conceal a sting operated with the aid of Lloyds TSB's co-conspirator, the insolvency section of the well-known firm of accountants, Grant Thornton.
As I said earlier, dates are important. Early in 1995, it emerged that Heritage's then financial director, George Raynor, had been acting in a dishonest way with his PAYE. It also emerged that Grant Thornton, where Raynor had personal friends, and which he had appointed as tax adviser to Heritage plc, was aware of the irregularities but had chosen not to tell Heritage. For that reason, and because of his failure to keep a proper sales ledger, Raynor was fired in June 1995. Grant Thornton was fired as tax adviser a little later, in August 1995. At that exact time, the bank began to insist on my constituent giving personal security.
In July 1995, the bank demanded an accountant's report and insisted on using Grant Thornton, despite Heritage's objections. Heritage directors were shown only a draft of that report, and were told that it was to be finalised after figures audited by KPMG were made available weeks later. In fact, the report was finalised by Grant Thornton only four days later. It misquoted the directors and contained damaging conclusions that were not shared with Heritage plc.
Even more sinister is the fact that three weeks later, on 10 August 1995, another concealed report was prepared, to which I shall return later. It contained the conclusion:the decision to support Heritage is now finely balanced".
The same day that the report was prepared, Mr. Lampert was told by Lloyds TSB how well the bank and Grant Thornton now believed Heritage was doing in overcoming the problems left by Raynor, and Mr. and Mrs. Lampert were encouraged to make an equity investment in the company —that is different from a loan —of £250,000, using money lent to them by Lloyds TSB and secured on their family home. If Mr. Lampert —or any of the other directors —had had sight of the August 1995 report, obviously he would not have agreed to the investment. Even as late as 1998, Lloyds TSB, through its solicitors Hammond Suddard, still denied the existence of the two concealed reports.
1268 One year later, in June 1996, when Lloyds TSB's exposure had been reduced by about £500,000 and it had earned about £250,000 in interest and fees, Mr. Lampert received another immediate call for an additional £125,000 loan. He was unable to meet the bank's timetable —
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. I am sorry to interrupt the hon. Gentleman, but I hope that he can assure me that the matters with which he is dealing are now historic in a legal sense, and that no sub judice question arises from continuing proceedings.
§ Dr. Vis
Indeed. Thank you for that advice, Mr. Deputy Speaker.
Mr. Lampert could not meet the bank's timetable because he was abroad. Lloyds used the trick that is normal in such circumstances, returned three cheques on important suppliers, and thus changed the cash-flow problem into a cash-flow crisis.
The directors worked on a restructuring plan involving a firm of accountants, which undoubtedly would have insisted on seeing all the reports on the company. Heritage also engaged in merger talks with a supplier. Both those options were put to the bank, and both were rejected without explanation, over the heads of the entire board of Heritage plc.
Lloyds TSB insisted on appointing Grant Thornton as receivers. That was appalling, but it is within the law. It insisted on making an immediate demand on Heritage's overdraft, although the company was within every term of its complex facility letter. That, too, is within the law. The company had only two banking hours to meet that demand, although the bank knew from past experience that Heritage could borrow the money from its customers. To give only two banking hours is within the law, even when the company has a London stock exchange listing.
The restructuring proposal would have benefited all stakeholders by at least £600,000. Heritage, of course, also had several million pounds' worth of intangibles such as good will, the quotation and its tax losses, all of which were immediately lost. The restructuring proposal would have maintained most of the jobs, and the merger would have maintained all the value for all stakeholders as well as all the jobs.
Lloyds TSB does not appear to be subject to the current regulations, and amazingly, Grant Thornton accepted the receivership. It did so in order to hide its misdeeds as reporting accountant. Having previously been the company's tax adviser, Grant Thornton was conflicted from accepting the receivership. That conflict manifested itself when one of Raynor's personal friends, Brian Michael Moritz, a senior partner at Grant Thornton, represented his interests and opinions to the receivers. Even though Raynor was reported to the DTI for unfit conduct, it is arguable that a firm that was not conflicted would have made a more thorough investigation of sales ledger write-off following Raynor's stewardship —a process that Heritage had started before the receivership. In its evidence to the Institute of Chartered Accountants in England and Wales, Grant Thornton admitted not considering it necessary to inform its client, Heritage plc, that its financial director was committing an illegal act. It also withheld the misdeeds from the company's auditors.
Grant Thornton recorded its appointment at 10.30 am on 11 July 1996. Lloyds TSB later claimed that it was not appointed until after 3.24 pm that day. The timing is 1269 crucial, because written confirmation of the merger proposals arrived at 12.20 pm that day. Grant Thornton refused to discuss the matter with Heritage plc directors or legal advisers. The proposal, as Grant Thornton well knew, was dependent on the maintenance of the stock exchange listing, which was lost once its appointment as receivers was announced. If it had waited until after receiving instructions, according to the bank's timing, that proposal could have been properly explored.
Grant Thornton misled the creditors about the restructuring proposal. It also ignored 1995 audited accounts in its meeting with London creditors, moving all of the write-off from Mr. Raynor's stewardship of the sales ledger to the year after he left. That concealed the substantial recovery of the company which everybody had worked so hard to achieve. The Manchester creditors were shown the truth about the recovery.
Initially, Grant Thornton claimed that the two missing reports were sent by courier to the company, but it could not prove that. Subsequently, it claimed that a draft of the second report was sent to Mr. Lampert's house on 9 August 1995, but could not prove it. Finally, Grant Thornton claimed that the report was faxed to his house that evening, but it could not prove it. Two days after the Court of Appeal hearing in November 1998 between Lloyds TSB and Mr. Lampert, Grant Thornton claimed in a letter to the Institute of Chartered Accountants in England and Wales that he must have seen the report because he invested as a result of its findings. That is peculiar, because until early 1998 Lloyds TSB solicitors claimed that the two concealed reports did not exist. That concealment is a clear breach of section 47 of the Financial Services Act 1986. It should concern the House that Grant Thornton believes that it can get away with such actions.
I am told that the Institute of Chartered Accountants in England and Wales has yet to censure insolvency practitioners employed by a major firm. Members of the insolvency industry, by having incestuous relationships with each other, can take advantage of any business that may experience a downturn. In the case of Heritage, that happened a year after the company had begun to recover. At the same time, insolvency practitioners can cover their own and each others' misdeeds. That cannot be right. Business people should not be encouraged to invest in themselves when the insolvency industry can grab that investment with impunity.
What progress has the Insolvency Service made in its review of the various complaints against Grant Thornton? Is my hon. Friend the Minister prepared to launch a thorough investigation into the receivership of Heritage plc? Does my hon. Friend the Minister intend to use his powers to bring charges under section 47 of the Financial Services Act 1986?
I have met Mr. Jeffrey Lampert several times, and have been on the phone to him a lot. I have been in contact with Lloyds TSB and all the parties that I have mentioned today, except the accountants. Mr. and Mrs. Lampert have been to hell and back. Despite that, Mr. Lampert remains jovial and gregarious, a man of great ability. He is an honest family man who will not give up this fight. I wish him and his family well and I will stand by them.
§ The Minister for Competition and Consumer Affairs (Dr. Kim Howells)
I congratulate my hon. Friend on securing this debate, and I have listened very 1270 carefully to his speech. He spoke with great passion and commitment on behalf of Mr. Lampert. I shall try to answer the three important questions with which he finished.
The regulation of insolvency practice and of insolvency practitioners has been a subject of interest to many in and out of the House. It is a great shame that no Opposition spokesman is here for the debate.
§ Mr. Deputy Speaker
Order. Madam Speaker has made it clear that Adjournment debates are personal debates, raised by an hon. Member and replied to by a Minister. They are nothing more than that.
§ Dr. Howells
Thank you, Mr. Deputy Speaker. I am chastened, although I am still interested in why there is no one here from the Opposition to hear the debate.
The case of Heritage plc to which my hon. Friend referred has been at the forefront of recent interest in this subject. I would like to say a few words about the regulation of insolvency practitioners as that lies at the heart of my hon. Friend's case. The Insolvency Act 1986 introduced a regulated profession. Under the Act, practitioners may be authorised by recognised professional bodies. Bodies are recognised for that purpose by the Secretary of State, and they include the principal accountancy bodies, the Insolvency Practitioners Association and the Law Societies in England and Wales and in Scotland.
Recognition is on the basis that the bodies have rules to ensure that practitioners have appropriate educational qualifications and experience. They must remain fit and proper to carry out the job. The bodies are responsible for regulation of the practitioners they authorise, but the Secretary of State has a residual licensing function. Officials at the Department of Trade and Industry's Insolvency Service are in close contact with the professional bodies as an essential part of the continuing development of the regulatory process.
In particular, officials visit the bodies to examine their procedures on authorisation, monitoring and handling of complaints. This is intended to be a review of procedures, not decisions in individual cases. The Secretary of State has no power to undertake such a review. Appropriate procedural recommendations are made where there appears to be scope for improvement. The bodies have responded positively to the recommendations, and procedures have been tightened and further controls introduced where necessary.
The Insolvency Service regulation working party recently published a report in which it found no evidence that regulation had been rendered less effective by its being administered by the professional bodies. I am inclined to believe that the working party was largely right on that.
Let me turn to the case of Heritage plc. Mr. Jeffrey Lampert, my hon. Friend's constituent and the former chairman and principal shareholder of the company, came to see officials in my Department's Insolvency Service in February 1998.
As my hon. Friend said, Mr. Lampert had concerns about the actions of Grant Thornton, two of whose partners had been appointed joint administrative receivers of Heritage plc and other companies in the Heritage group. Grant Thornton had previously undertaken financial appraisals of the group on the instructions of its bankers, Lloyds. 1271 Officials explained to Mr. Lampert that the receivers were authorised to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. His complaints were, therefore, a matter for the institute in the first instance. With his agreement, an outline of Mr. Lampert's complaint and a supporting bundle of papers were forwarded to the ICAEW by my officials.
I do not think that I need to go into all of the details of Mr. Lampert's complaint —I certainly do not have time to do so. Suffice it to say that his concerns included a possible conflict of interest on the part of the receivers and an alleged failure to provide copies of reports to the board of directors. That is precisely the case that my hon. Friend made.
Mr. Lampert's complaint was considered by the ICAEW's investigation committee on 16 March. The committee decided that no prima facie case for disciplinary action had been made out. Mr. Lampert was dissatisfied with that outcome and contacted officials once more. They explained to him, as did the ICAEW, that it was open to him to ask for the committee's decision to be referred to the institute's independent reviewer of complaints. Mr. Lampert has not so far done so but that option, which is the next stage in the procedure, remains available to him.
In the interim, officials have met with representatives of the ICAEW and have looked at the institute's files on the case. This is in no sense a review of the committee's decision. As I said earlier, the Secretary of State has no power to review the decision of a professional body. However, officials examined the procedures and were satisfied that they were properly carried out. They also took the view that the decision reached by the committee was not an unreasonable decision.
Mr. Lampert also contacted the DTI on the separate issue of whether there had been an offence under section 47 of the Financial Services Act 1986. That relates to the alleged failure of Grant Thornton to provide copy reports to the board of directors of Heritage. My Department gave the matter careful consideration, but concluded that there was nothing in the allegation that should be pursued further.
I understand that Mr. Lampert has also been in touch with the Financial Services Authority about the actions of Lloyds bank and, no doubt, the FSA will be considering whether it should be taking any action. My hon. Friend made that case clear.
I have considerable sympathy for the position in which Mr. Lampert finds himself. He has provided Lloyds bank with very substantial personal guarantees. He has pursued his complaints with various agencies with great diligence. If, however, he wishes to pursue his complaint further against the receivers, his only option would appear to be 1272 to ask the institute to refer the matter to the reviewer of complaints. Certainly, I do not see that there is anything further that the DTI can do to help him in this respect.
I wish to raise one further issue. One of Mr. Lampert's areas of complaint is that the partners in Grant Thornton had a conflict of interest, as my hon. Friend clearly illustrated, when accepting appointment as administrative receivers. The possibility of such a conflict where the appointment follows an earlier appointment as investigating accountant has been the subject of previous concern.
The insolvency professional bodies have issued specific guidance to practitioners which, in effect, states that a practitioner will not normally be prevented from taking a subsequent appointment as receiver where the appointment as investigating accountant is by a creditor. However, the guidance also says that the propriety of a subsequent appointment as receiver may be called into question if the circumstances of the initial appointment as investigating accountant are such as to prevent open discussion of the financial affairs of the company with the directors.
Those and other issues concerning the relationship between banks and business customers have been addressed by the British Bankers Association in its March 1997 statement of principles. That statement seeks to show how banks intend to work together with businesses to get the relationship right from the outset and to help if businesses get into difficulties. My hon. Friend made the point that we must examine the rescue culture, and we are considering that carefully to save jobs and to save people from bankruptcy in such situations. The banks are reviewing their experience of nearly two years operation of the statement of principles.
The framework set out in the statement of principles should discourage any notion that the appointment of investigating accountants will inevitably lead to the appointment of that firm — or, indeed, any other firm —as administrative receivers. It is interesting to note that in a recent survey by the Society of Practitioners of Insolvency for the period 1996-97, practitioners reported that the overall business preservation rate for companies in rescue-oriented procedures —receiverships, administrations and company voluntary arrangements —was 59 per cent.
That does not mean that there is any room for complacency. The Government want as many companies as possible to be encouraged to overcome any short-term financial problems that they may experience. That needs to be kept under careful scrutiny. I am glad that my hon. Friend raised this case because it is an object for us to study. He made his case clearly and carefully. We will consider it closely.
§ Question put and agreed to.
§ Adjourned accordingly at one minute past Three o ' clock.