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Austin Mitchell (Great Grimsby) (Lab)
The tale I want to tell today is an everyday story of business folk who have been robbed of their company by big banks acting in collusion with one of the big four accountancy houses—two sets of robbers, both too big to be touched by the machinery of regulation that we have. It is a story that is told several times in the Tomlinson report; those stories relate mainly to the Royal Bank of Scotland, whereas this story relates to Lloyds bank.
By analysing the process of company theft by banks and big accountancy houses working in collusion, I have discerned four stages. First, they introduce a Trojan horse to the company. Whoever it is, the Trojan horse then buddies up to the company and finds its vulnerabilities, while presenting a nice image and offering advice. Naturally, if that Trojan horse is a representative of one of the big four accountancy houses, they will be trusted, because we can trust the big four, can we not? They are big institutions of great repute that are worthy of trust. The third stage is that the Trojan horse insists on restructuring the company’s finances to put the bank in control. In the fourth and last stage, the company is put into administration for the bank to take for its own or to sell on to whoever is interested.
That is the technique and the four stages that were applied to Premier Motor Auctions, a Leeds-based auction firm that was profitable and well run. Lloyds bank itself described it as profitable and as a business of significant value. The company had an overdraft with Lloyds of £1.75 million. The Trojan horse was Irving Warnett of PricewaterhouseCoopers, who was put into Premier Motor Auctions, and welcomed by the company, as a non-executive director. As he put it, he was there as a “critical friend” to advise on how to run the business. Warnett went on to create a £2 million black hole in the company’s accounts by insisting—wrongly, as it turns out—that it had to have a separate account for its business with the Driver and Vehicle Licensing Agency, business that was in itself profitable. Legally that was not true, but the company went and created a separate account, which in turn required the overdraft to be increased from £1.75 million to £3.75 million.
At that point, the bank used its power to take control of the company. At the same time, it transferred the account to the Lloyds business support unit, which charged a higher interest rate and a £250,000 arrangement fee for its services to the company. Having created the black hole and transferred the account, the bank immediately instructed Keith Elliott, the chief executive and owner of Premier Motor Auctions, to sell the company “vigorously and robustly” via an administration that was to be handled by PwC.
As anyone sensible would, Elliott fought back. He got a rescue deal from a venture capital firm called Endless, which described the company as an “excellent firm” enjoying record sales. Lloyds scuppered the deal with Endless. It demanded 50% of the new deal. The manager of the Lloyds business support unit in Leeds said, “This is our attempt to crystallise the position and do an Endless/Lloyds deal without Keith Elliott.”
Not to be beaten—he is a resilient man and who can blame him for fighting to retain control of a company he built up?—Keith Elliott did another deal, with Scottish Motor Auctions, which would have secured the £2 million by which the overdraft had to be reduced to stop the administration. Someone—we do not know who, but it was either someone from Lloyds or PwC’s man, Irving Warnett—scuppered that deal in 24 hours. Lloyds has given me a long explanation, which I am inclined to accept, and which says that it was not someone from Lloyds, so the finger points at Irving Warnett and PwC. The deal was scuppered and Premier Motor Auctions was put into administration. In charge of the administration was Ian Green, the head of PricewaterhouseCoopers’ business recovery service and the boss of Irving Warnett, the man who had been put into the company in the first place and who was the architect of the whole financial arrangement.
Lloyds therefore got an equity interest in a company that Lloyds Development Capital had wanted to take over for some time. Through the administration, it took over a company that was making an annual profit—and still is—of £2.7 million. As for PwC’s share of the deal, it of course got a much higher fee for the administration than it would have from the simple transfer.
To put it bluntly and accurately, that is theft. That company was stolen. I have raised the issue in Parliament before, and Keith Elliott and I have raised it with various bodies. Elliott raised it at the Lloyds annual general meeting, and wrote to every director and partner of PwC, until eventually he was told to stop contacting the firm because he was becoming a nuisance.
After that, we went to the regulators. Regulators are surely there to protect companies and those who run them from theft and from having their company stolen from under their feet—what are they there for if not to offer that protection? Every one of them turned out to be a broken reed. Both Elliott and I appealed separately to the Institute of Chartered Accountants, which is the regulator for PricewaterhouseCoopers. It refused to investigate, because the case was “not a disciplinary matter”. I hope hon. Members have noted that point: theft is not a disciplinary matter, so if one of the big four accountancy houses colludes in the theft of a company, it cannot be disciplined—it is not a disciplinary matter. I do not know what it is; perhaps it is business acumen, but apparently it is not theft or a disciplinary matter. That was the response from the ICA. Elliott and I both wrote to protest against the decision, and it wrote back to say it would not answer any further correspondence on the matter. We were becoming a nuisance—as we should have been.
We then went to the Financial Reporting Council—the regulator of regulators. It too refused to investigate, saying that it was “not in the public interest” to do so. In other words, theft does not matter and is not in the public interest; or perhaps—I do not know whether this was what it was saying—theft is in the public interest but investigating it is not in its view. That is obvious balls. It is rubbish, and should never have been allowed.
When PricewaterhouseCoopers refused to answer my questions, the then Minister in the Department for Business, Innovation and Skills, the right hon. Member for Cardiff Central (Jenny Willott), kindly wrote to PwC—I am grateful to her for doing so—to say that it should answer MPs’ legitimate questions. That is absolutely right and I am grateful to the Department for that. PwC told the Yorkshire Post, which inquired about how that had gone, that it had written to the Minister, who had no further questions to ask.
The Yorkshire Post then discovered, through a Freedom of Information Act request, that the Department had not received a letter from PwC. I do not know whether that was a lie commensurate with the lie it told the Public Accounts Committee when it said that it was not selling tax evasion schemes, but it certainly was not true. It escaped from the Minister’s requests.
Ian Powell, a senior partner at PricewaterhouseCoopers, wrote to me:
“I am satisfied that PwC acted properly.”
When someone is judge and jury in their own case, it is easy to develop satisfaction that their company acted properly. So that was a nice reply, saying “something off” to me.
Mr Warnett had been retired by that time—I do not know why—and PwC has refused to allow him to be interviewed about his part in the matter, either by me or the new liquidators. He will not answer questions and PwC will not answer questions. In particular, it will not answer questions on the crucial issue of what Irving Warnett did to increase the debt, whether that was right—the lawyers say that it was not—and what he did to scupper the Scottish Motor Auctions deal, which would have saved Premier Motor Auctions from going into administration.
After being sent lots of letters, PwC gave me some answers in a final letter on 14 November. Those answers turned out not to be correct, but it says that it has answered. Instead of answering the questions, a woman from PwC wrote to me—Margaret Cole is her name, and she describes herself as general counsel to PwC—and told me, kindly:
“It is apparent from your latest letter that you believe that Parliament has a role in resolving disputes such as this. I do not agree with this”.
That is what she said. She continued:
“The courts are the ultimate and appropriate forum.”
In other words, she is saying, “Don’t go whimpering to Parliament if your company is robbed, thieved or if PricewaterhouseCoopers colludes with a bank to take it. Don’t go whimpering to Parliament—it’s got no power. Don’t go to the regulators, because they’ve got no power. Go to the courts, and face PricewaterhouseCoopers’s enormous army of highly paid lawyers. Drive yourself into bankruptcy by embarking on legal action against these big battalions.” That is to a man who has lost his company and his money. That is incredible advice and it is unbelievable that PwC should have the impertinence to say to a Member of Parliament, “Parliament’s not the forum; it’s the courts. And we’re bound to win in the courts because we’ve got weight, scale, big lawyers and clever arguments.”
That letter makes it clear that the little guy is very vulnerable in such situations and that he has no means of redress. It is clear that the big four and the banks are too big to take on, break up or deal with. Their power is overwhelming. It has increased and it must be diminished. They must not be able to crush the small guy on a whim in their determination to take on a profitable company.
Instead of chaps regulating chaps, we need effective regulation, just as they have in the United States, to stop such theft. If we do not get that, a threat will hang over all small and medium-sized enterprises that are in financial difficulties or have to turn to the banks for overdraft facilities. They will be crippled, robbed and possibly stolen by those powerful predators.
The big four and the banks are the new barons, with enormous power, and the citizen has little power. I am glad to say that Keith Elliott is still fighting back, now not only against the dirty deal imposed on him, but for all the small and medium-sized companies threatened by that kind of brutal takeover by financial institutions.
The power of these big institutions—the banks and accountancy houses—is far too great and must be diminished, but that can be done only by regulation and by making them accountable: by redressing the balance that weighs so heavily against the ordinary Joe. That is Parliament’s job and I hope that the Minister will tell us how the Government will address that imbalance and provide some means of redress for small companies and their directors who face such a situation. I am fighting on behalf of not only Premier Motor Auctions and Keith Elliott, but all companies threatened with that kind of financial takeover by big institutions.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)
It is a great pleasure to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing the debate. I recall, as he mentioned, that we debated this subject in November 2013. The fact that he has returned to it for discussion today is testament to his tenacity and willingness to pursue the matter raised by his constituent, Mr Elliott, who he feels passionately has suffered a real injustice.
In our discussion almost 18 months ago, I set out that I shared and had some sympathy with many of the concerns raised. A wide range of people have expressed concerns about some aspects of insolvency regulation, which is why we have taken steps to make changes. I set out, which remains the case today, that I did not have powers to intervene in this case. Of course, the changes we are making will not be retrospective, but I hope to be able to set out the package of reforms that we have been able and continue to bring forward to strengthen the insolvency regime, which together are a bold step forward. I hope that the hon. Gentleman will be reassured by that.
I appreciate that that does not help in this specific case, which is covered by the systems that applied at the time. I know that the conflict of interest issues have been considered by the court, who dismissed that application. The ICAEW reviewed the complaint and concluded that there were no such issues. The Insolvency Service then considered the ICAEW’s handling of the complaint and did not find fault, so in terms of the different routes available in this specific circumstance, it was hard to see how the redress the hon. Gentleman ultimately seeks would be possible. However, in terms of the wider regime going forward, we are determined to improve the situation for companies that might find themselves in similar situations.
I appreciate that that will be frustrating, not least for the hon. Gentleman’s constituent, but he has been able to set out his concerns about the case and the behaviour of the different organisations involved in handling it powerfully. If I may give my view, which is perhaps different from that given by those organisations, I think it is absolutely the place of parliamentarians to represent their constituents’ views, raise issues of concern and put those firmly on the record in Parliament when they believe that an injustice has been done. I do not think it is for other organisations, frankly, to tell MPs whether this is an issue that they should or should not pursue on their constituents’ behalf.
On that note, although we are from different parties, I would like to recognise that the hon. Gentleman has a reputation for being a great defender of his constituents, with ever-forthright comments about whatever issue of the day he is concerned about. Although this may not be his last contribution in this House—I hope it is not—it may well be one of the last, and Parliament will certainly be losing a character when he steps down from his constituency in a short while.
I will turn to what we are specifically doing to strengthen insolvency regulation shortly, but first, let me say that we have an open mind on whether to take further steps. The ethics code requires administrators to satisfy themselves that the board is happy with the appointment and to consider any threats to their independence. We are reviewing that in conjunction with the regulators and seeing whether it is sufficiently robust, so that is one area in which there could be further movement, depending on the outcome.
Austin Mitchell
Will the Minister tell us what is happening about the Tomlinson report, which is a review of a series of very similar cases to this one, but concerning RBS? That demands action, too.
Jo Swinson
Great minds think alike, because that was going to be my very next point. In 2014, the Financial Conduct Authority announced that it had appointed firms to conduct an independent skilled persons report to examine RBS’s treatment of business customers in financial difficulty and consider the allegations that were set out in the report by Lawrence Tomlinson, which were about poor practice that he had evidence of. Once the FCA skilled persons report has been published, which we expect to happen this summer, we will carefully consider whether any issues need to be taken into account in terms of insolvency legislation—including the regulation of insolvency practitioners—that have not been addressed by the reforms in progress. It may be that those issues are already addressed by our package of reforms, but if further issues are raised, we will keep an open mind about taking further steps.
I turn to measures that we are already taking on strengthening insolvency practitioner regulation. The Small Business, Enterprise and Employment Bill, which is currently before the House, contains measures to strengthen the regulatory regime for insolvency practitioners. The introduction of regulatory objectives will make sure that insolvency regulators have a framework within which to carry out their activities. That is intended to make sure that a consistent approach is applied and to give a reference point for discussions between regulators, insolvency practitioners and the Insolvency Service. The objectives set out in the Bill will ensure that the regulators have a system of regulating insolvency practitioners that gives fair treatment and consistent outcomes for people affected by their acts or omissions.
Regulators will have to encourage an independent and competitive insolvency profession, whose members deliver high-quality services at a fair and reasonable cost, with transparency and integrity. They must seek to maximise returns to creditors and be prompt in making those returns, and the public interest must be protected and promoted during the insolvency process.
Another measure could have been relevant in this case, had the provisions been in place at the time; I am referring to the power to allow the Secretary of State to apply to the court for a direct sanctions order against an insolvency practitioner, when that is in the public interest. The sanctions could be a range of measures, including revoking authorisation and a financial contribution to creditors. I said when we previously discussed this issue that there was literally no power for Ministers to intervene, but the new regulation addresses that. We anticipate that, because this is a strong power, it would be used sparingly. It would need to be used when there was clear public interest and evidence of serious breaches of law or standards by insolvency practitioners, and when swift action was necessary. None the less, that gap, where previously there was no power, is being filled and there will be a power. Combined with other measures in the Bill, that should hopefully address the perception that the current disciplinary procedures for insolvency practitioners are not always effective in delivering fair and prompt outcomes for those affected.
The sanction powers and the regulatory objectives will hopefully make sure that we have a clear, transparent system that can hold people who do not deliver to account. Those changes, along with work that the Insolvency Service is doing with both the profession and the regulators to enhance the regime, should improve trust and confidence without the need for further intervention. However, if that set of measures is not sufficient and there is still a lack of trust and confidence in the system, we have the back-stop power in the Bill to establish a single insolvency regulator. That is if we do not see the anticipated improvement and confidence in the regime.
Many people express surprise that there are eight different regulators that authorise insolvency practitioners. I confess that before becoming the Minister responsible for insolvency, I was not aware of that. I had heard of some of the bodies, but was not fully aware of the degree of complexity. I well understand the view that that diversity does not necessarily help matters. I can see the potential benefits, including choice, but that fragmented regulatory landscape can lead to problems of inconsistency and complexity.
We were working, even before introducing the powers in the Bill, to deliver more consistency. A common sanctions framework has been agreed and a single gateway for complaints set up. That should ensure that, whichever body regulates a particular practitioner, the complaints process and the outcomes will be consistent across the profession.
I will turn briefly to the improvements made in relation to pre-packs, which have been a concern of many hon. Members. The Government commissioned Teresa Graham to conduct an independent review in 2013, and her recommendations were published in June 2014. The report concluded that pre-packs were an important and valuable part of the insolvency landscape— indeed, I think it was intended and hoped that a pre-pack would be the solution in this case, even though there was not a successful outcome—but that there was a lack of transparency and confidence, particularly where a sale was to a connected party.
The review recommended a voluntary package of reforms, which my officials have been working with stakeholders to implement. The reforms include setting up a pool of experienced business people to scrutinise a planned pre-pack sale to a connected party and a strengthened professional standard for pre-packs, which will require more information on the valuation and marketing of businesses to be provided to creditors. We are working to put that in place. The review also recommended that we should take a back-stop power for use if the voluntary reforms were not successful, and we have done that in the Bill. Those reforms are in place, and we hope that they will be successful, but if not, we have additional powers in the Bill. Sometimes additional powers can also act as an incentive for all those involved to ensure that the voluntary regime delivers the outcomes needed.
There has been significant concern about the fees that insolvency practitioners charge. Earlier this month, I announced new legislation affecting how IPs charge fees. In the future, they will be required to give clear information on their fees and expenses before asking creditors to approve them. Where fees are based on time costs, creditors will need to agree an estimate of the likely fees. If the insolvency practitioner’s fee then exceeds the approved limit, they will need to seek further approval before being able to draw any additional amounts. Basically, the estimate acts as a cap on fees. Those measures deal with the concerns that many creditors had about a blank cheque in effect being written for the administrators, and have been welcomed by the profession and creditor bodies.
I have mentioned some of the other things that are already being taken forward, such as the review of the ethics code and the new complaints gateway, which will bring some consistency to the issue. People are becoming more aware of the complaints gateway. Last year, nearly 1,000 complaints were dealt with via that single complaints gateway. That is a sign that there is a degree of success from the changes that we are making.
I hope that the hon. Member for Great Grimsby will recognise that the Government have listened and continue to listen to the comments that he and others make about the problems in parts of the insolvency regime, which generally is very highly regarded. We need to remember that we have one of the best regimes in the world. Our insolvency profession is highly skilled and undertakes difficult work in challenging circumstances, saving many businesses and thousands of jobs each year. However, we must always strive to improve it. That is why we are undertaking these reforms. They will mean that in the coming months we will have an improved insolvency regime, including a better regulatory regime that will inspire greater confidence that insolvency practitioners and their regulators are working in a way that strikes the right balance between parties affected by insolvency. I hope that cases such as the one—
