Premier Motor Auctions

Jo Swinson Excerpts

Tuesday 12th November 2013 Westminster Hall

[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.