Premier Motor Auctions

Austin Mitchell Excerpts

Tuesday 12th November 2013 Westminster Hall

[Austin Mitchell (Great Grimsby) (Lab)]

May I say what a pleasure it is to serve under your chairmanship for the first time ever, Mr Bone? I want to tell the story today of the theft of a profitable Yorkshire company by the mafia—I do not mean the criminal mafia that we often speak of, but Britain’s dark-suited mafia, which in this case is represented by Lloyds bank and PricewaterhouseCoopers, both acting in collusion and neither of them subject to police controls, because both regulate themselves.

The company is Premier Motor Auctions, which had a turnover of £160 million, had 160 staff, and was profitably selling 50,000 cars a year in 2008, which was one of its most profitable years. It was described by Lloyds as a “great auction business”. However, the company had an overdraft facility of £1.75 million, because the chief executive, Keith Elliott, was pushing the limits to expand the company. That included the costs of due diligence on an aborted takeover, the purchase of a new site in Birmingham and a proposal to establish a business in the United States. The overdraft facility gave the bank the idea of taking it over and it introduced Irving Warnett of PricewaterhouseCoopers to the company as a non-executive director. He called himself, as he came in, a critical friend, and he worked for Ian Green, who was the northern leader of business recovery services for PricewaterhouseCoopers.

Warnett went through the accounts and insisted on creating a £2 million account for a Driver and Vehicle Licensing Agency contract that the company held. That turned out to be unnecessary—it was not even required by the DVLA contract—but it created a hole in the company’s finances, which Lloyds agreed to fill by increasing the borrowing limit to £3.75 million, in return for which it demanded vigorously and robustly that the company be sold via an administration in which PwC would, amazingly to me, act for both parties. That was in September 2008. It was to be sold to Lloyds Development Capital under what was called Project Tic, which was headed by the takeover specialist Matthew Packham.

Elliott fought back, and he got the support of a venture capital firm called Endless, which described Premier Motor Auctions as an excellent business. It was prepared to refund the £2 million borrowing that had been unnecessary, but Lloyds, in return, insisted on owning 50% of the business and proposed to put the business again into administration. That was described by Lloyds as Project Toc, and PwC was to handle the administration, at the end of which Lloyds was to buy the business for £1. To ensure that that happened, Lloyds then threatened to withdraw funding on 4 December, which was the day before the deal was completed. It said, in internal documents, that this was its attempt to crystallise the position and to do a deal without Keith. PwC was proposing to act for both sides, which, again, I would have thought was a conflict of interest on its part.

Elliott, not to be beaten—resourceful man as he is—did a deal with Scottish Motor Auctions, which agreed to put up £2 million and avoid administration, which, as it pointed out, would have shattered confidence in the business. That was a good deal from the point of view of Elliott and Premier Motor Auctions, but not from the bank’s point of view, and in 24 hours, the deal, on 11 December, had been aborted and a new deal was reached between Scottish Motor Auctions and Lloyds, over Elliott’s head. Lloyds and Scottish Motor Auctions would now take over the company, so the bank was still achieving its aim, despite Keith Elliott’s resourcefulness in getting the £2 million paid off.

The central question, therefore, becomes who aborted the deal with Scottish Motor Auctions. A director of Scottish Motor Auctions said that it had been given a very clear steer that SMA’s bid would be unacceptable—unacceptable, presumably, to the bank. I have had a considerably long letter of explanation from the bank, and I am grateful for that. It has given me an explanation some of which is actually correct. The bank says that it did not abort the Scottish Motor Auctions deal, and it points to PricewaterhouseCoopers. PwC has refused to answer any questions on the issue, so I do not know whether the deal was aborted by Mr Warnett or by his boss Ian Green—they both worked in the same office and shared the same secretary—but I do know that aborting the Scottish Motor Auctions deal made the difference to PwC’s fees, which went from £10,000 for the SMA deal, if it had gone through, to £500,000 for carrying out the administration, which Lloyds wanted to do. The total cost of that administration, including lawyers’ fees and everything, came to £1.2 million.

In some respects, that is the end of the story. Keith Elliott was forced out, and to get his overdraft, he had been forced to sign a warrant to the bank, which is something banks tend to force on customers now, giving it the option to purchase, which it now proposed to exercise, excluding Keith Elliott entirely. That was what he was told by post earlier in December. Therefore, a company that was making, that year, £2.5 million, before interest and tax, was put into administration by PwC and bought back by Lloyds and Scottish Motor Auctions. It is now functioning again and generating considerable profit for them. Elliott has been forced out, and Scottish Motor Auctions, Lloyds bank, and presumably PwC, which handled the administration, are laughing all the way to the bank, having made a very considerable, generous profit out of the deal—out of effectively stealing the company. Elliott is left owing £2 million on a warrant that he signed to get the £2 million from Lloyds in the first place.

In my view, the way in which the company was taken over does not just smell—it stinks. It is a monstrous theft of the company. The Independent Banking Advisory Service, which Keith Elliott consulted, has confirmed that this is happening elsewhere to other companies taken over by banks in this fashion. IBAS says that the banks are being protected by Government and have a “special relationship” with them. I quote from a letter of 28 September 2012 in which IBAS states that that special relationship

“has allowed the banks and other professionals with whom they have conspired—to plunder and gain control of very profitable business, which the banks had marked as targets”—

as Lloyds had marked Premier Motor Auctions—

“…deliberately using the insolvency industry as a shield to conceal many acts of deception and fraud.”

I hope that the Department will inquire into that, because if it is happening on a bigger scale than at Premier Motor Auctions, it is an appalling practice to impose on businesses that want to compete, prosper and grow, and it is a threat to businesses besides Keith Elliott’s.

What smells even more and is even more worrying is the lack of redress for a company director and company in this situation. Neither Lloyds nor PwC has answered the specific questions—about who aborted which deal, why and when—that I and Keith Elliott have put to them. Lloyds has been helpful in giving its side of the story, but it still has not answered the questions and it will not agree to an independent investigation by a liquidator that Elliott will fund personally to prove that he was right. It has also prevented disclosure by six directors after he won a court order for disclosure of their internal papers.

PricewaterhouseCoopers—a distinguished name—has been even less helpful. Elliott’s inquiries were answered by a lawyer’s letter, saying that his queries were

“calculated to cause annoyance and inconvenience to our client”.

That’s a nice one. PwC has not answered my questions, either. It will not correspond further. It has told Elliot to sue it. All that is, to me, as clear an admission of guilt on the part of PwC as we are going to get. It can get away with it, because the regulation of accountancy and insolvency is handled by the regulator, which is the Institute of Chartered Accountants in England and Wales. That would better be renamed the “society for the prevention of cruelty to the big four accountancy houses”, which manage the institute’s staff, provide time off for their partners to serve the institute, dominate its proceedings and make it judge and jury in their own case. It has not investigated Elliott’s claims. It has told him that his redress is now by means of judicial review, which it is not, of course, because that is out of time.

The Financial Reporting Council, which is the regulator of regulators, will not investigate because, it says, the number of people affected is small and doing so is not in the public interest. Well, if investigating the theft of a company is not in the public interest, it beats me what is.

The Minister and the Insolvency Service both say they have no standing in the matter. The problem that we are talking about is the theft of a viable, profitable company by one of the big banks, in close co-operation—conspiracy, one might say—with PricewaterhouseCoopers. What I am asking this morning, therefore, is, first, that there be an official inquiry into this company theft, which should cover the question whether this is going on with other banks—whether other companies are being taken over by the banks, in collusion with accountancy houses, in the same way. It is in effect the theft of companies.

I am asking secondly for effective independent regulation of accountancy, audit and insolvency. Regulation by the Institute of Chartered Accountants, the protective body for the big four, is just not enough, and it means that the big four are in effect their own masters and take their own decisions. That is a totally undesirable situation. The public and companies must have some right of redress and right of appeal—some knowledge that there will be an independent inquiry into such abuses.

I am asking thirdly for the effective regulation of the banks to ensure that they do their job, which is lending to support small and medium-sized enterprises, rather than using the power that they have from granting overdrafts to take them over.

I am asking, as a general issue, that the enormous power of those big beasts the banks—banks that are too big to fail and are in effect protected by the Government —and the enormous power of the big four accountancy houses, which are too big to control and in effect regulate themselves through the Institute of Chartered Accountants, be restrained. We need a healthy, vigorous and open environment for business and we need institutions such as the banks and the big accountancy houses to be accountable and effectively regulated in the public interest. Everywhere, great power such as exists in the hands of the banks and the accountancy houses must be accountable, and it should be in this instance.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

First, I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing the debate. He has been a tenacious advocate on behalf of his constituent, Mr Elliott, and his concerns about the administration of the companies of which he was the managing director. I applaud the hon. Gentleman’s work on behalf of constituents generally, which we all wish to undertake as MPs in our own constituencies.

I hope to be able to address some of the points that the hon. Gentleman has raised on this specific case, although he will appreciate that there are limits to what I can say—and, indeed, do—on this case. However, he has also raised his concern that these issues exist more widely, so I will also touch on what the Government intend to do to address issues in the insolvency market more widely.

[Mr Philip Hollobone in the Chair]

The concerns that the hon. Gentleman has outlined regarding this case include the alleged conflict of interest involving the administrator, the accountancy firm PwC and the bankers, Lloyds. Mr Elliott has made it clear that he considers that the close relationship between PwC and the bank enabled his companies to be sold in an inappropriate and irregular way. The hon. Gentleman described that as, in effect, the theft of the company. I appreciate that his constituent feels very strongly about this issue, not least because this was his livelihood and his company. We all understand that.

The hon. Gentleman also outlined his concerns about the wider context of the banks acting with the big four accountancy firms to sell businesses at a profit for themselves, to the detriment of creditors and those who had been running the companies. I recognise that people are worried about the independence of insolvency practitioners and I will come to those matters, but I should perhaps try to manage expectations. I may be unable to satisfy the hon. Gentleman on the specifics of this case, because I do not have the power to intervene in individual insolvencies. The issue is not whether I am willing to do so; it is simply that I am not able to do so.

The hon. Gentleman will inevitably be more familiar with the intricate details of the case than I am, but my understanding is that Irving Warnett was introduced, he says, as a non-executive director and a critical friend of Premier Motor Auctions. My understanding is also that, whatever discussions took place, he was never actually appointed as a non-executive director, so the legislation on directors’ responsibilities does not specifically apply to him. The issues about a conflict of interest have been investigated, and I will come to the way in which that complaint was handled.

The hon. Gentleman also highlighted the two different deals that seemed to be on the table in December 2008. One was much more appealing to Mr Elliott. The other, which ultimately was the one undertaken, was clearly not as acceptable to Mr Elliott. I understand the hon. Gentleman’s concern about where that decision was made, but I do not have the power to secure that information.

That said, I strongly encourage any company receiving correspondence from a Member of Parliament about a constituency case to engage with that Member of Parliament and answer their questions. After all, we elect 650 MPs to represent everybody up and down the country, and the office of Member of Parliament should not be disrespected by any individual company. It would be helpful if the relevant companies found it in themselves to engage a little more constructively and answer some of the questions that the hon. Gentleman understandably put to them on behalf of his constituent.

The hon. Gentleman highlighted a couple of deals, which go by the interesting names of Project Tic and Project Toc. In August 2008, Lloyds were apparently insisting that the company went into administration, which he referred to as Project Tic. Project Toc involved Endless LLP and Lloyds buying the company out of administration through a specially created new company. It is difficult to comment on those specifics, because the sale did not take place under either of those projects.

Mr Elliott complained to the ICAEW, which is the insolvency regulator of the administrator, Mr Green. As the hon. Gentleman knows, it investigated the complaint, which involved the potential conflict of interest around Mr Green becoming administrator when previously, it is alleged, there was a material relationship between PWC and the companies involved.

The ICAEW investigation concluded that no conflict of interest arose, on the basis that PwC was acting as investigating accountants for the bank prior to the administration, and therefore it was not contrary to the code of ethics with which all insolvency practitioners must comply. The ICAEW also looked at PwC’s negotiating to sell the business in the days before Mr Green was appointed and stated that that likewise did not breach the code because PwC was trying to maximise asset realisations, which was compatible with Mr Green’s duties as administrator.

Every insolvency practitioner should be aware of potential conflicts of interest. There was an investigation in this case, because there clearly should have been awareness of that, but if an insolvency practitioner works for a particular firm, a conflict of interest is not automatically inevitable. The investigation found that there was no conflict of interest in this circumstance.

[Austin Mitchell]

In fact, as the Minister pointed out earlier, Mr Warnett was not appointed as a director, but the letter from Lloyds specifically said that he was to be a non-executive director. On that basis, he was received by the company and gave advice to create the £2 million hole in the accounts.

The ICAEW investigation was only a partial investigation of part of the complaint. The complaint, which put three headings together, had to be treated as a whole to show the conspiracy, but the ICAEW said that it could not be treated in that fashion and that it would investigate only part of it. That investigation was certainly far from thorough, because it has left open the question whether PwC could act for both the company and the purchaser in the administration.

[Jo Swinson]

As the hon. Gentleman is aware, Mr Elliott was unhappy with the investigation and therefore also asked the Insolvency Service to use its oversight role to review whether the ICAEW had dealt with the case properly in its investigation of the complaint. The Insolvency Service concluded that the ICAEW had adhered to its complaints processes and that the finding of the investigation committee was not unreasonable.

I have not seen the letter of engagement from August 2008 on the appointment of a director, but whatever is in that letter, if somebody is to be appointed as a director, a formal process must be undergone through Companies House. That did not happen, so there was no status as non-executive director, even if it was supposed to happen. The investigation took place and was looked at by the Insolvency Service, and that is where the powers we have get us to in this circumstance.

I am absolutely sympathetic. I understand the concerns of Mr Elliott and the hon. Gentleman. It is important that those who deal with the insolvency of a company are seen as independent, and I understand why on this occasion there is not necessarily confidence that that was the case. I stress to all insolvency practitioners that they need to look long and hard at their position when they take on the administration of a company, to see whether there is any potential conflict. They should take appointments only where they feel that they are able to act with independence.

The hon. Gentleman placed the issues raised by the case in the wider context. It is helpful to look more generally at what we are doing for companies that find themselves in a similar situation. The Insolvency Service is taking an increased interest in conflicts of interest. It is focusing its oversight regulation work on the specific issue of insolvency practitioner independence. When it goes out to monitor insolvency regulators, it looks at how those regulators consider alleged conflict of interest cases and whether the current code of ethics is robust enough.

For example, the Secretary of State recently wound up a number of introducer firms that had inappropriate relationships with insolvency practitioners. Creditors and complainants continue to express concerns about the effectiveness of the regulatory regime for insolvency practitioners. Stronger oversight powers would help to improve confidence in the regime. We will therefore bring forward proposals, when we can find time within the legislative programme, to strengthen the powers of the Secretary of State as the oversight regulator.

The case brings to mind issues more generally. Many hon. Members have expressed significant concerns about the pre-pack process. In July, I announced that Teresa Graham would be appointed to undertake an independent review of the pre-pack procedure. The review is under way and is considering, among other things, whether pre-packs provide value for creditors and how confidence in the procedure can be improved. We have passed on the concerns that Mr Elliott raised to the review team, as part of its evidence-gathering process, so that it can look at a variety of different cases where people have been worried about what has happened. The review is expected to conclude by spring next year—in just a few months’ time.

The Insolvency Service has also worked with the regulators to develop a revised standard for pre-packs, known as SIP16—statement of insolvency practice 16. It requires insolvency practitioners to provide earlier and more detailed information to creditors about valuations, marketing and the justification for a pre-pack.

Importantly, where there is evidence of abuse by an insolvency practitioner, creditors can now use a new single complaints gateway. It is a single point of access for complainants and therefore much easier to use, given the fragmented regulatory regime with different regulators. It will also make it easier for the Insolvency Service to oversee the progress of complaints. Common sanctions guidelines have been introduced by the majority of insolvency regulators, to create more consistency in disciplinary standards.

In conclusion, I shall turn to the role of banks. Banks will undertake reviews to assess the viability of a company for continued or enhanced financial support. As a fundamental feature of our financial and insolvency law, lenders that have valid security must be able to appoint an agent, such as an investigating accountant, to protect the value of that security. Banks also need to act responsibly and consider the implications of any decision they ultimately take.

The Government recognise the problems that there have been in the banking sector, which have done a considerable amount to undermine people’s faith in the banking system. We recently responded to the report from the Parliamentary Commission on Banking Standards, which marks the next step in the Government’s plan to improve confidence and build a banking sector that upholds high standards of ethics and professionalism. We will continue to strengthen standards in banking, by working with the regulators to strengthen corporate governance and ensure that firms have good systems in place to maintain standards on ethics and culture. Such issues are important.

I appreciate that what I have outlined on insolvency and banking will not necessarily help in the specific case brought to us today, but I hope that it provides reassurance that we are aware of the important general issues and are taking action.