Corporate Communications was the darling of the 1980s, a rising media and PR company with plush offices in London rented at the cost of around one million pounds a year . Corporate Communications was run by two well known entrepreneurs who received a salary and expenses package of around £450,000 per annum. The company was audited by Price Waterhouse who also acted as advisers. An unqualified audit opinion was given on the 1990 accounts, but it was subsequently learnt that the affairs of a subsidiary had been excluded. Before the 1991 accounts are finalised it appears that the accompany would break its financial covenants to the bank and Price Waterhouse are asked to prepare a restructuring package. Their fees was more than a million pounds. On 23rd July 1992, the company was told that its restructuring proposals were not acceptable and on 30th July, the company was placed into receivership as its bankers, the Royal Bank of Scotland, were unwilling to restructure its finances. Within hours the receivers sold the main part of the business back to the directors (PR Week, 6 August 1992, p. 1). Only a month before, the business with debts of £32 million had been valued at £11 million (PR Week, 22 October 1992, p. 1). Now the directors paid around half that figure to buy the very same assets. The phoenix had risen and the company was back in business. Corporate Communications’ bankers had got their money back, but the main casualties were the unsecured creditors, estimated to be some £16 million (PR Week, 15 October 1992). Some three months after the rise of the phoenix, some unsecured creditors were finally able to call the receivers, Coopers & Lybrand, to account. The meeting proceeded in the usual manner. The receivers came in and explained that the assets had been sold off and that no money was available for unsecured creditors.
Midnight receiverships and quick sales to management do not occur without planning. Some documentation leaked out. It showed that, at least a month before the receivers were called in, the group’s management and bankers were considering a plan to transfer all the group’s assets to brand new companies, leaving the main creditor, its landlord, high and dry. Another document showed that just three days (i.e. 27 July 1992) before the date they were appointed, the receivers took part in discussions about how to sell the main assets back to the management. A letter from the company’s US based lawyers (Piper & Marbury) states, “The proposed receivership for Corporate Communications plc, the senior management, and the Bank of Scotland, are discussing the following transaction to be offered after the receivership of corporate communications”. The letter then went on to detail a complex mechanism for phoenixing the company in a way that “accommodates all of our respective concerns”. The concerns of the people who would lose their money were not mentioned. No one other than the management was given enough time to bid for the company’s assets. No creditor was told of the prior connection between the receivers and the company management.
What about the much vaunted ethical guidelines which are supposed to govern insolvency practitioners. The ethical guidelines issued by the ICAEW stated that “where there has been a material professional relationship with a company, no principal or employees of the practice should appointment as a receiver in relation to that company”. n this case Coopers had been doing work for the company and its management before their appointment as receivers. For example, they had valued the company and prepared detailed plans for restructuring the company. Ian Bradberry, the IPA President explained that the “rationale behind the ethical guideline is in order to maintain independence and objectivity in any insolvency related function that a member is asked to perform or appointed to”. So what is material relationship? Bradberry explained that “Certainly where a practice has previously acted as auditor or taxation advisers to the subject company”. But what if someone had been paid to carry out work on the long term future plans of the company or to advise on the financial restructuring, would that count as a material relationship? Bradberry commented, “I suggest that it would if you had been involved in acting for the company in any form of reconstruction or rearrangement, yes, bearing in mind the questions of independence and objectivity, it would be advisable for firm that had been involved in that situation not to accept an insolvency appointment”.
A formal complaint was lodged (letters dated 19 and 21 January
1993) with the DTI, urging it to investigate the matters. The Minister
for Corporate Affairs rejected the call for independent investigation
|“If the creditors of the company consider that they have been disadvantaged
by the sale, it is open to them to seek legal advice as to the remedies
which might be available to them.”
Source: Letter from the Minister for Corporate Affairs, dated 3 February 1993
The Minister suggested that the matter should be referred to the ICAEW.
A formal complaint was lodged with the ICAEW on 21st January 1993. After
a routine acknowledgement nothing further was heard. After a reminder,
an ICAEW spokesperson assured (letter dated 22 July 1993) that the matter
is receiving attention. A deathly silence fell upon the ICAEW and nothing
more was heard. A complaint to the DTI (20 June 1994) drew the response
that “officials are writing to the Institute to seek a report as to progress
in relation to the handling of this case” (letter from the Minister for
Corporate Affairs, 9 July 1994). A letter sent the same day to the ICAEW
elicited the reply that
|“The Investigation Committee concluded its enquiries into this matter
at its meeting on 6th June 1994 and did not find that any professional
misconduct had occurred. ......The Investigation Committee does not give
reasons for its decisions.
Source: Letter from the ICAEW Chief Executive, dated 29 June 1994.
The details of the above case were broadcast on the BBC’s Radio Four,
‘File on Four’ programme and the resulting tape recording was sent to the
DTI on 18 July 1994. The Minister would not consider an independent investigation
and argued that the matter is for the ICAEW to investigate (letter dated
18 July 1994). But the ICAEW response (30 September 1994) was simply to
reaffirm the previous decision. The ICAEW report into the matters relating
to the receivership of Corporate Communications remains unpublished.
We do not the nature of evidence which the Investigation Committee considered
or ignored. We do not know how any evidence was weighted, the questions
which were asked, replies sought, files examined, written/oral evidence
taken or anything else. It seems to use that the ICAEW was only too keen
to sweep things under its dust-laden carpets.