Farepak

John Hayes Excerpts

Wednesday 14th December 2011 Westminster Hall

[The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes)]

It is a great pleasure to be able to respond to this debate, Mr Weir, and I am grateful to the hon. Member for Newport East (Jessica Morden) for bringing the matter to our attention. It is a matter of profound concern to the people involved. I think I reflect the Government’s perspective in adding my view that this was completely unacceptable. Many vulnerable people were associated with it and it has taken far too long to sort out. The steps taken to try to resolve it were far slower than both the people detrimentally affected and any reasonable observer might have anticipated, so I am extremely sympathetic to the case that the hon. Lady has made and to the circumstances of the people who were so badly affected. It is understandable that questions of the kind that she has posed are raised when so many people are affected. The insolvency is particularly sad, coming around a savings scheme—a club, if you like—that was tied to Christmas, as we now approach Christmas some years later. This is a poignant subject, and the emotions evident in the contributions made so far reflect the character of the matter with which we are dealing.

[Tony Cunningham]

Does the Minister accept that what makes the situation even worse—it is bad enough that it is Christmas and so on—is that the agents who were taking the money week after week were taking it from friends? The responsibility and the guilt that they feel, because they have let down their friends, are enormous.

[Mr Hayes]

Yes, that is true. It is a good point. The hon. Gentleman made that point in an earlier intervention in a different form, and he is right. We think of the victims as the people whose money was contributed and lost, but the wider effect of the kind he described is also very sad, because people were acting in good faith, unaware of the likely consequences of the role that they played until it was too late to do anything about it. The hon. Gentleman is right to identify the communal effect that it had on communities that are often tight-knit and where trust matters. This is a poignant matter that understandably stimulates heartfelt sentiments. I will try to deal factually with the circumstances, but it is hard to do that in the context, about which we feel deeply.

The matter started before we came to office, but it is not a partisan matter. Governments need to express a view and take appropriate action. The case began under the previous Government and, of course, because it has not yet been satisfactorily drawn to a conclusion in terms of the money received by the people concerned, it continues under this Government. However, neither Government could have intervened in the conduct of a particular insolvency, as that remains subject, as hon. Members will know, to the overall supervision of the court. Nevertheless, I can give some background as to where the Government stand at the moment.

On the issue that was raised about the directors, concern was rightly expressed about their position and their living up to their responsibilities. They are the people who controlled the company. The investigation that took place was complex. As the hon. Member for Newport East mentioned, it resulted in an application by the Business Secretary, in the High Court of Justice on 26 January this year, for disqualification orders to be made against the directors. It was made in the public interest on the ground that the conduct of each director makes him or her unfit to be concerned in the management of a company. It is, of course, a legal application. None the less, the fact that we made it reflects the Government’s view that this is a matter of profound concern. The individuals must be held responsible. As a result, opportunities to serve in a similar or indeed any business capacity should be limited. To say more about that at this stage would probably be improper, but the message that I have broadcast makes clear my views and those of the Government.

[Jessica Morden]

Does the Minister have any idea how long the process will take, and will he address the issue of the knighthood if the person in question is found guilty?

[Mr Hayes]

That is a fair question, but since the matter is now part of a legal process it is difficult for me to give a definitive answer. It would not, however, be unreasonable for my hon. Friend the Member for Kingston and Surbiton (Mr Davey), who is the Minister responsible for such matters, to respond directly to the hon. Lady, and I will ask him to do just that. I am not the Minister responsible for this particular matter, although I am happy to act as a conduit to the person who is. On such occasions when I am standing in for a Minister, it is my habit to make it clear to them that they have a responsibility to hon. Members and to the Chamber. I am more than happy to pass on the fact that I would like my hon. Friend the Member for Kingston and Surbiton, in so far as he can, to answer that question.

[Mr Buckland]

In the spirit of that constructive approach, may I ask the Minister the question posited by the hon. Member for Workington (Tony Cunningham) about the criminal aspect of this case? Was a proper investigation ever carried out by the Serious Fraud Office or the Crown Prosecution Service into allegations of fraudulent trading? It certainly seems to me, and to many others, that that should have been looked into at the time. If it was not looked into, why was that?

[Mr Hayes]

I will try to deal in my remarks with some of the actions that were taken, and if I do not cover that point I will come back to my hon. Friend on the matter. I would like to make some progress to describe what actions have been taken, although I am mindful of that intervention and do not seek to avoid it. I will try to deal with it during my remarks, but if I cannot, I will subsequently reply to my hon. Friend directly.

[Nick Smith (Blaenau Gwent) (Lab)]

Will the Minister give way?

[Mr Hayes]

I will give way briefly, but I want to make some progress because I am short on time.

[Nick Smith]

It is great that the Minister has shown such sympathy for the victims of this injustice. Such schemes take place up and down the valleys in south Wales, and many members of my family have participated in them in the past. I would like to press the Minister on the matter of alleged fraud. Will he let us know what he is going to say on the matter sooner rather than later, so that we can quiz him further? People are very angry.

[Mr Hayes]

When I have made some progress, if I have not satisfactorily covered that matter I give a commitment that either I or the Minister responsible will respond properly and as far as we can within the legal constraints that I have set out. I am aware of the hon. Members who have participated in this debate, and of those who have a particular interest in the area. I am not avoiding the issue; it is a fair question and I will ensure that it gets a fair answer from the Government. I am not in the business of avoiding difficult subjects, particularly ones such as this that unite the whole House in its view of what is and is not appropriate.

In the short time that we have available for this important debate, let me make some progress so that I can deal with some of the points raised. I want to set out the steps that we have taken to avoid such things happening in the future. As the hon. Member for Newport East said, the main companies in the hamper industry, through the Christmas Prepayment Association, introduced new safeguards for consumers’ money in the form of independently controlled, ring-fenced trust accounts. I know that the hon. Lady is doubtful about the self-regulation of the industry, but however imperfect, those safeguards represent significant progress for an industry that has, quite frankly, faced something of a shake-out following the Farepak affair. Relatively few businesses are now involved in that industry, and their coming together in the way that I have described represents significant progress.

There are various other Christmas saving accounts, such as clubs run by supermarkets, large retailers, local shops, social clubs, pubs and workplaces, and risks are always associated with any business of that kind. They are bigger and certainly more widespread than the principal companies that most of us know about. Local schemes exist throughout the country, and have done so throughout my lifetime if not considerably before. I remember my mother being part of a small, local Christmas saving club when I was a child, and it is hard to regulate every such arrangement. None the less, the Office of Fair Trading has produced a leaflet entitled “Save Xmas”—I am sorry it is not “Save Christmas”—which is a quick guide to paying for Christmas. The leaflet lists various schemes and indicates whether there is any protection should they go bust. It is important that people who put their money into such schemes know where they stand at the outset, because that has not always been the case in the past.

The Money Advice Service provides advice on its website about what protection is offered for various ways of saving money, and in addition, the Office of Fair Trading’s consumer codes approval scheme, which aims to safeguard consumer interests and raise standards in markets, lists the protection of prepayments as one of its criteria. The OFT has approved 10 codes so far, and we are currently consulting on how consumer codes will operate in future, in light of proposals for institutional reform for those bodies that are currently responsible for consumer and competition policy. Those measures should help savers to avoid losing prepaid moneys in future.

On the issue of insolvency, it is clearly a matter of regret that more money is not available for distribution, and I understand the concerns mentioned by the hon. Member for Newport East, and others, about the expenses incurred in dealing with liquidation—I think she described the figure as “eye watering,” and I do not disagree. Farepak is clearly no ordinary insolvency because it is so complex. It was complex from the start and involved an exceptionally large number of customers and agents—more than 116,000—and the identities of many of those were initially unknown. Considerable work was therefore involved in identifying creditors and substantiating their claims.

The creditors’ committee, which represents those who have lost money, has received regular detailed reports on the progress of the liquidation and approved the actions of the liquidators. I understand that the liquidators have undertaken various investigations in order to increase asset realisations, including action that resulted in £4 million being recovered from the directors of the company. I also understand that the liquidators are currently working to bring proceedings against third parties, with the intention of increasing the pot of money available to creditors. Given the nature of such an action, the liquidators say that it is not possible to determine when moneys will be paid to creditors. As a result of this debate, however, I will make further inquiries, and ask the Minister responsible to report back to hon. Members about the anticipated time scale, in so far as he reasonably can.

The liquidators point out that the work they have undertaken over the years has resulted in the possible amount payable to creditors increasing from 5p to 15p in the pound. I accept that 15p may not be perceived as sufficient, but as the hon. Lady knows, it has substantially increased from the original estimate. The liquidators have also stressed that the creditors’ committee can, at any time, instruct them to stop their activities and pay creditors from the funds already secured. They have also indicated that due to the sheer number of creditors, the process of paying a dividend will be very expensive. They therefore want to ensure that as far as possible, all money that can be recovered is received before a payment to creditors is made. The aim is to get the amount returned per pound to the highest possible level before we start the process of paying the creditors. Otherwise, we will add to the administrative costs associated with the process, and the balance between what that costs and the benefit people receive will be even further out of kilter.

I do, however, believe that the figure of £8.2 million, in contrast with the current dividend prospect of £5.5 million, causes considerable concern. I know that the hon. Lady shares my concern about the level of fees, and she will know that the Government have considered the issue and what should be done in the future. I hope that what I have said today will provide some assurance that I, and other Ministers, believe that we cannot leave the situation as it is in terms of how such matters are handled.

In April 2010 new provisions came into force for insolvencies commencing after that date, giving creditors additional powers to obtain information about the fees and expenses charged by insolvency practitioners. The percentage of creditors required to bring a challenge in court was reduced from 25% to 10%, and the issue of fees charged by insolvency practitioners was considered by the OFT in a report published in June 2010.

Earlier this year, my hon. Friend the Member for Kingston and Surbiton, the Minister with responsibility for issues of insolvency, issued a consultation on a set of proposed reforms to the regulation of insolvency practitioners, including how practitioners deal with complaints. Our aim is to ensure transparency and accountability and to improve confidence in the insolvency process.

This has been a useful discussion on an important subject. I have had little time to sum up the debate, but I take this issue seriously, just as the Government take seriously the whole business of dealing with insolvency. We will take steps to ensure that the process is fair, reasonable and timely, and I will ask my hon. Friend the Member for Kingston and Surbiton to come back to Members on any specific points that I have not had the chance to cover, and make the position clear.