Farepak

Tony Cunningham Excerpts

Wednesday 14th December 2011 Westminster Hall

[Jessica Morden (Newport East) (Lab)]

Although I am happy to have secured this debate, I am extremely unhappy that I felt compelled to apply for it. I had hoped that justice would have been done by now, and that Farepak customers and agents would have received at least some of their money back. However, five years from Farepak’s collapse, customers have not received a penny of the compensation due to them, and have not seen justice done. Those responsible have not been held to account. To add insult to injury, on the fifth anniversary of Farepak’s collapse, we have learned that not only has none of the £5.53 million compensation been paid, but the administrators, BDO, have admitted that the cost to date of winding up the company comes in at £8.2 million, which is far more than the compensation owed.

[Tony Cunningham (Workington) (Lab)]

Is it worth reminding people that the company knew when it took money from people that it was not able to provide the goods and services required, and that the people it defrauded could least afford to lose that money?

[Jessica Morden]

I thank my hon. Friend for his intervention. He makes an incredibly valid point. The people involved had modest incomes, and could least afford to lose that money. They ended up paying twice for Christmas, or borrowing money. The whole matter was a scandal, and we are still no clearer about when it will be resolved. Farepak victims were ripped off twice: once when the company collapsed, and secondly by an establishment that has not protected them.

The history of Farepak’s collapse is well documented, and has been the subject of debates in the House, often initiated by Anne Snelgrove, the former Member for Swindon South, whom I applaud for her unstinting work in standing up for Farepak customers and employees. As this is only a half-hour debate, I will not rehearse the history, except to say that Farepak went bust on 13 October 2006, and the result was that the Christmas savings of around 120,000 people, in total about £38 million, were apparently lost. The money seemed to have been siphoned off to help to combat the debts of the parent company, European Home Retail but as my hon. Friend said, Farepak continued to collect money even when it knew that it had problems.

My inspiration for the debate is my constituent Deborah Harvey, who was a Farepak agent. The word tenacious does not come anywhere near doing her justice. Deb was an agent in Alway in Newport, and encouraged eight friends to spread the cost of Christmas by saving with Farepak with her. Like many agents, she was not motivated by self-interest; she was driven by wanting to see justice for the friends who saved with her because they knew her. They are owed a total of £2,100, and if they ever recoup any money, they will probably receive just £315.

--- Later in debate ---

[Jessica Morden]

I thank my hon. Friend for her intervention. She made her incredibly valuable point very well. She has done sterling work on the Farepak issue over the years, and I commend her for that.

My Farepak savers in Alway will probably receive a total of about £315. I acknowledge the organisers of the unfairpak website who keep the campaign going and are a source of information for Farepak victims in a sometimes unclear process.

Where are we, five years on? Have the directors of Farepak been brought to book? No. The Government, through the Insolvency Service, have finally applied to the courts to disqualify Sir Clive Thompson and eight other directors associated with the collapse of Farepak. Does the Minister not believe that the length of time that the directors have had to appeal while still holding office is incredible when innocent victims wait and wait? Perhaps he will tell us how long the Government expect the case to last? As a Farepak agent told me the other day, if she had stolen something, she would have to pay for what she had done wrong, and it would not take five years.

[Tony Cunningham]

Let us be honest. If someone broke into a house and stole such an amount of money, they would find themselves in prison. They would be jailed, never mind paying compensation, or justice. They would find themselves in prison, and that is where they should be.

[Jessica Morden]

I thank my hon. Friend for his intervention, which was well made. Many victims have called for Sir Clive Thompson to have his knighthood removed if he loses the case, and perhaps the Minister will also address that point.

A survey posted on Twitter and the Farepak victims committee Facebook page reveals what Farepak victims think: 95% of the respondents thought that the liquidators had taken too long, and should have finished by now; 79% did not think that there are enough regulations to protect consumers from anything like the Farepak collapse happening again and 95% thought that all Christmas savings schemes should be tightly regulated. Many Farepak customers are upset about how the administrators, BDO, have handled the liquidation process. BDO struck an agreement with some of the ex-directors of Farepak to pay a total of £4 million in compensation, which is about 15p per pound owed. Not only are Farepak victims angry, as they should be, at receiving only 15p in the pound, they find it deeply unfair that as part of the deal the directors accept no liability for Farepak going bust. Will the Minister say whether that is common practice?

I am aware that some agents and customers received some money back in 2009 under a court order. That was a repayment to customers who had made payments as the company collapsed and which Farepak tried to put into trust accounts. Customers received some compensation from a response fund just after the company went bust, but as yet no customer has received any money via the administrators. BDO will argue that the reason is that it is still chasing, and that it is standard practice for administrators not to pay out any dividend until all avenues have been exhausted. However, as widely reported in the news last month, BDO has so far cost in excess of £8.2 million, which includes, for example, £50,000 for public relations work. That is an eye-watering sum, especially when BDO has managed to obtain only £5.5 million back for the victims. So far, the process hardly seems fair.

I understand that there is a possibility that ex-customers could receive less than 15p in the pound. If the administrators fail to recoup any more money from ongoing operations, they will take their costs from the moneys already recouped. I accept that the ongoing actions, if successful, could result in ex-customers receiving more money, but either way the administrators will accrue more and more costs, making customers even more resentful.

--- Later in debate ---

[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.