This is the ext of a debate in the House of Commons on 7th May 1999.
Note how Ministers defend the insolvency industry and pass the buck
Insolvency (Heritage plc)
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Betts.]
Dr. Rudi Vis (Finchley and Golders Green): Unfortunately,
I cannot be brief, so I shall try
to be quick. I will also read out quite a bit of information, as I want the record to be entirely
straight in its details of dates, times and names, of which there are a few. I was going to say
also that I would not take interventions because I wanted to make sure that the record was
full. However, that will not now be necessary.
The debate concerns the regulation of insolvency practitioners,
with special reference to
Heritage plc. The Government have promised repeatedly to help small businesses to survive
and prosper, and I welcome that. However, there are contrasting interpretations of existing
legislation. That is particularly the case when it comes to the excesses of the insolvency
industry, as practised by the banks and their servants the insolvency practitioners.
Through the greed and questionable practices of those
practitioners, operated with impunity,
many small and medium-sized companies are needlessly closed; their directors--who
frequently have put all their personal assets on the line--thrown out of work; and their
families thrown on to the streets to become an extra burden on the taxpayer.
According to figures provided by the Independent Banking
Advisory Service, if all banks
followed the example set by the Royal Bank of Scotland and separated the roles of reporting
accountants and receivers, 44,700 jobs a year would be saved. Meanwhile, the insolvency
vultures continue to earn fat fees.
Lord Sudeley referred to the case of Heritage plc, Lloyds
TSB and Grant Thornton in the
Lords debate of 26 January 1999. Heritage plc was quoted on the London stock exchange. It
operated in east London and Manchester, supplying major retailers in the United Kingdom
with household articles. It employed more than 100 people, many of whom were disabled.
The former chairman, Mr. Jeffrey Lampert, was my constituent until Lloyds TSB succeeded
in evicting him and his family from their home.
The case perfectly reflects the unchecked excesses of
the sharks to whom I have referred.
Before coming to me, Mr. Lampert took the Heritage plc story to the Bank of England, which
said, "This should be dealt with by the banking ombudsman." The ombudsman, hearing that
the company's turnover was more than £1 million a year, said, "It's not for me, go back to the
Bank of England," which then said, "Go to the FSA," which said, "It's not us; we don't
consider individual cases. Go back to the Bank of England." The Bank of England had no
further comment at that stage.
Mr. Lampert went to the London stock exchange, which referred
him to the Department of
Trade and Industry D2 prosecutions section, which concluded:
"taking account of the code for crown
prosecution it is not in the public interest to instruct an officer to
I am satisfied that the statutes are in place, but they
are not being interpreted in a way that
protects businesses and jobs from the excesses of the insolvency industry.
7 May 1999 : Column 1267
In December 1996, Mr. Lampert approached Peter Ellwood,
currently Lloyds TSB group
chief executive, and his approach proved similarly fruitless. Mr. Lampert has personally
banked with Lloyds for more than 40 years--truly a case of "Your Life Your Bank", as the
soft advertising campaign says. The facts about Lloyds TSB are different from the image that
it seeks to create. I have statistics showing that the Independent Banking Advisory Service
receives 36 times more complaints about Lloyds TSB's integrity, which is well defined, than
about the Midland bank's.
Apart from the fact that Heritage plc was quoted on the
London stock exchange, its case is
reasonably typical. Heritage banked with Lloyds from its inception and the bank sponsored
it onto the London stock exchange in July 1988. As a result of that flotation, as one would
expect, Heritage embarked on a series of acquisitions, advised by the bank. Despite what the
directors believed was a long, close and mutually trusting relationship, Lloyds TSB
suddenly closed down Heritage plc. The only logical reason for that action, which did not
emerge until two years later, was to conceal a sting operated with the aid of Lloyds TSB's
co-conspirator, the insolvency section of the well-known firm of accountants, Grant
As I said earlier, dates are important. Early in 1995,
it emerged that Heritage's then financial
director, George Raynor, had been acting in a dishonest way with his PAYE. It also emerged
that Grant Thornton, where Raynor had personal friends, and which he had appointed as tax
adviser to Heritage plc, was aware of the irregularities but had chosen not to tell Heritage.
For that reason, and because of his failure to keep a proper sales ledger, Raynor was fired in
June 1995. Grant Thornton was fired as tax adviser a little later, in August 1995. At that
exact time, the bank began to insist on my constituent giving personal security.
In July 1995, the bank demanded an accountant's report
and insisted on using Grant
Thornton, despite Heritage's objections. Heritage directors were shown only a draft of that
report, and were told that it was to be finalised after figures audited by KPMG were made
available weeks later. In fact, the report was finalised by Grant Thornton only four days
later. It misquoted the directors and contained damaging conclusions that were not shared
with Heritage plc.
Even more sinister is the fact that three weeks later,
on 10 August 1995, another concealed
report was prepared, to which I shall return later. It contained the conclusion:
"the decision to support Heritage is now finely balanced".
The same day that the report was prepared, Mr. Lampert
was told by Lloyds TSB how well
the bank and Grant Thornton now believed Heritage was doing in overcoming the problems
left by Raynor, and Mr. and Mrs. Lampert were encouraged to make an equity investment in
the company--that is different from a loan--of £250,000, using money lent to them by Lloyds
TSB and secured on their family home. If Mr. Lampert--or any of the other directors--had
had sight of the August 1995 report, obviously he would not have agreed to the investment.
Even as late as 1998, Lloyds TSB, through its solicitors Hammond Suddard, still denied the
existence of the two concealed reports.
7 May 1999 : Column 1268
One year later, in June 1996, when Lloyds TSB's exposure
had been reduced by about
£500,000 and it had earned about £250,000 in interest and fees, Mr. Lampert received
another immediate call for an additional £125,000 loan. He was unable to meet the bank's
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I am
sorry to interrupt the hon.
Gentleman, but I hope that he can assure me that the matters with which he is dealing are
now historic in a legal sense, and that no sub judice question arises from continuing
Dr. Vis: Indeed. Thank you for that advice, Mr. Deputy Speaker.
Mr. Lampert could not meet the bank's timetable because
he was abroad. Lloyds used the
trick that is normal in such circumstances, returned three cheques on important suppliers, and
thus changed the cash-flow problem into a cash-flow crisis.
The directors worked on a restructuring plan involving
a firm of accountants, which
undoubtedly would have insisted on seeing all the reports on the company. Heritage also
engaged in merger talks with a supplier. Both those options were put to the bank, and both
were rejected without explanation, over the heads of the entire board of Heritage plc.
Lloyds TSB insisted on appointing Grant Thornton as receivers.
That was appalling, but it is
within the law. It insisted on making an immediate demand on Heritage's overdraft, although
the company was within every term of its complex facility letter. That, too, is within the law.
The company had only two banking hours to meet that demand, although the bank knew from
past experience that Heritage could borrow the money from its customers. To give only two
banking hours is within the law, even when the company has a London stock exchange
The restructuring proposal would have benefited all stakeholders
by at least £600,000.
Heritage, of course, also had several million pounds' worth of intangibles such as good will,
the quotation and its tax losses, all of which were immediately lost. The restructuring
proposal would have maintained most of the jobs, and the merger would have maintained all
the value for all stakeholders as well as all the jobs.
Lloyds TSB does not appear to be subject to the current
regulations, and amazingly, Grant
Thornton accepted the receivership. It did so in order to hide its misdeeds as reporting
accountant. Having previously been the company's tax adviser, Grant Thornton was
conflicted from accepting the receivership. That conflict manifested itself when one of
Raynor's personal friends, Brian Michael Moritz, a senior partner at Grant Thornton,
represented his interests and opinions to the receivers. Even though Raynor was reported to
the DTI for unfit conduct, it is arguable that a firm that was not conflicted would have made
a more thorough investigation of sales ledger write-off following Raynor's stewardship--a
process that Heritage had started before the receivership. In its evidence to the Institute of
Chartered Accountants in England and Wales, Grant Thornton admitted not considering it
necessary to inform its client, Heritage plc, that its financial director was committing an
illegal act. It also withheld the misdeeds from the company's auditors.
Grant Thornton recorded its appointment at 10.30 am on
11 July 1996. Lloyds TSB later
claimed that it was not appointed until after 3.24 pm that day. The timing is
7 May 1999 : Column 1269
crucial, because written confirmation of the merger proposals
arrived at 12.20 pm that day.
Grant Thornton refused to discuss the matter with Heritage plc directors or legal advisers.
The proposal, as Grant Thornton well knew, was dependent on the maintenance of the stock
exchange listing, which was lost once its appointment as receivers was announced. If it had
waited until after receiving instructions, according to the bank's timing, that proposal could
have been properly explored.
Grant Thornton misled the creditors about the restructuring
proposal. It also ignored 1995
audited accounts in its meeting with London creditors, moving all of the write-off from Mr.
Raynor's stewardship of the sales ledger to the year after he left. That concealed the
substantial recovery of the company which everybody had worked so hard to achieve. The
Manchester creditors were shown the truth about the recovery.
Initially, Grant Thornton claimed that the two missing
reports were sent by courier to the
company, but it could not prove that. Subsequently, it claimed that a draft of the second
report was sent to Mr. Lampert's house on 9 August 1995, but could not prove it. Finally,
Grant Thornton claimed that the report was faxed to his house that evening, but it could not
prove it. Two days after the Court of Appeal hearing in November 1998 between Lloyds
TSB and Mr. Lampert, Grant Thornton claimed in a letter to the Institute of Chartered
Accountants in England and Wales that he must have seen the report because he invested as a
result of its findings. That is peculiar, because until early 1998 Lloyds TSB solicitors
claimed that the two concealed reports did not exist. That concealment is a clear breach of
section 47 of the Financial Services Act 1986. It should concern the House that Grant
Thornton believes that it can get away with such actions.
I am told that the Institute of Chartered Accountants
in England and Wales has yet to censure
insolvency practitioners employed by a major firm. Members of the insolvency industry, by
having incestuous relationships with each other, can take advantage of any business that may
experience a downturn. In the case of Heritage, that happened a year after the company had
begun to recover. At the same time, insolvency practitioners can cover their own and each
others' misdeeds. That cannot be right. Business people should not be encouraged to invest
in themselves when the insolvency industry can grab that investment with impunity.
What progress has the Insolvency Service made in its review
of the various complaints
against Grant Thornton? Is my hon. Friend the Minister prepared to launch a thorough
investigation into the receivership of Heritage plc? Does my hon. Friend the Minister intend
to use his powers to bring charges under section 47 of the Financial Services Act 1986?
I have met Mr. Jeffrey Lampert several times, and have
been on the phone to him a lot. I
have been in contact with Lloyds TSB and all the parties that I have mentioned today, except
the accountants. Mr. and Mrs. Lampert have been to hell and back. Despite that, Mr. Lampert
remains jovial and gregarious, a man of great ability. He is an honest family man who will
not give up this fight. I wish him and his family well and I will stand by them.
The Minister for Competition and Consumer Affairs (Dr.
Kim Howells): I congratulate
my hon. Friend on securing this debate, and I have listened very
7 May 1999 : Column 1270
carefully to his speech. He spoke with great passion and
commitment on behalf of Mr.
Lampert. I shall try to answer the three important questions with which he finished.
The regulation of insolvency practice and of insolvency
practitioners has been a subject of
interest to many in and out of the House. It is a great shame that no Opposition spokesman is
here for the debate.
Mr. Deputy Speaker: Order. Madam Speaker has made it clear
that Adjournment debates
are personal debates, raised by an hon. Member and replied to by a Minister. They are
nothing more than that.
Dr. Howells: Thank you, Mr. Deputy Speaker. I am chastened,
although I am still interested
in why there is no one here from the Opposition to hear the debate.
The case of Heritage plc to which my hon. Friend referred
has been at the forefront of recent
interest in this subject. I would like to say a few words about the regulation of insolvency
practitioners as that lies at the heart of my hon. Friend's case. The Insolvency Act 1986
introduced a regulated profession. Under the Act, practitioners may be authorised by
recognised professional bodies. Bodies are recognised for that purpose by the Secretary of
State, and they include the principal accountancy bodies, the Insolvency Practitioners
Association and the Law Societies in England and Wales and in Scotland.
Recognition is on the basis that the bodies have rules
to ensure that practitioners have
appropriate educational qualifications and experience. They must remain fit and proper to
carry out the job. The bodies are responsible for regulation of the practitioners they
authorise, but the Secretary of State has a residual licensing function. Officials at the
Department of Trade and Industry's insolvency service are in close contact with the
professional bodies as an essential part of the continuing development of the regulatory
In particular, officials visit the bodies to examine their
procedures on authorisation,
monitoring and handling of complaints. This is intended to be a review of procedures, not
decisions in individual cases. The Secretary of State has no power to undertake such a
review. Appropriate procedural recommendations are made where there appears to be
scope for improvement. The bodies have responded positively to the recommendations, and
procedures have been tightened and further controls introduced where necessary.
The insolvency service regulation working party recently
published a report in which it
found no evidence that regulation had been rendered less effective by its being administered
by the professional bodies. I am inclined to believe that the working party was largely right
Let me turn to the case of Heritage plc. Mr. Jeffrey Lampert,
my hon. Friend's constituent and
the former chairman and principal shareholder of the company, came to see officials in my
Department's insolvency service in February 1998.
As my hon. Friend said, Mr. Lampert had concerns about
the actions of Grant Thornton, two
of whose partners had been appointed joint administrative receivers of Heritage plc and
other companies in the Heritage group. Grant Thornton had previously undertaken financial
appraisals of the group on the instructions of its bankers, Lloyds.
7 May 1999 : Column 1271
Officials explained to Mr. Lampert that the receivers
were authorised to act as insolvency
practitioners by the Institute of Chartered Accountants in England and Wales. His complaints
were, therefore, a matter for the institute in the first instance. With his agreement, an outline
of Mr. Lampert's complaint and a supporting bundle of papers were forwarded to the
ICAEW by my officials.
I do not think that I need to go into all of the details
of Mr. Lampert's complaint--I certainly
do not have time to do so. Suffice it to say that his concerns included a possible conflict of
interest on the part of the receivers and an alleged failure to provide copies of reports to the
board of directors. That is precisely the case that my hon. Friend made.
Mr. Lampert's complaint was considered by the ICAEW's
investigation committee on 16
March. The committee decided that no prima facie case for disciplinary action had been
made out. Mr. Lampert was dissatisfied with that outcome and contacted officials once
more. They explained to him, as did the ICAEW, that it was open to him to ask for the
committee's decision to be referred to the institute's independent reviewer of complaints.
Mr. Lampert has not so far done so but that option, which is the next stage in the procedure,
remains available to him.
In the interim, officials have met with representatives
of the ICAEW and have looked at the
institute's files on the case. This is in no sense a review of the committee's decision. As I
said earlier, the Secretary of State has no power to review the decision of a professional
body. However, officials examined the procedures and were satisfied that they were
properly carried out. They also took the view that the decision reached by the committee
was not an unreasonable decision.
Mr. Lampert also contacted the DTI on the separate issue
of whether there had been an
offence under section 47 of the Financial Services Act 1986. That relates to the alleged
failure of Grant Thornton to provide copy reports to the board of directors of Heritage. My
Department gave the matter careful consideration, but concluded that there was nothing in the
allegation that should be pursued further.
I understand that Mr. Lampert has also been in touch with
the Financial Services Authority
about the actions of Lloyds bank and, no doubt, the FSA will be considering whether it
should be taking any action. My hon. Friend made that case clear.
I have considerable sympathy for the position in which
Mr. Lampert finds himself. He has
provided Lloyds bank with very substantial personal guarantees. He has pursued his
complaints with various agencies with great diligence. If, however, he wishes to pursue his
complaint further against the receivers, his only option would appear to be
7 May 1999 : Column 1272
to ask the institute to refer the matter to the reviewer
of complaints. Certainly, I do not see
that there is anything further that the DTI can do to help him in this respect.
I wish to raise one further issue. One of Mr. Lampert's
areas of complaint is that the partners
in Grant Thornton had a conflict of interest, as my hon. Friend clearly illustrated, when
accepting appointment as administrative receivers. The possibility of such a conflict where
the appointment follows an earlier appointment as investigating accountant has been the
subject of previous concern.
The insolvency professional bodies have issued specific
guidance to practitioners which, in
effect, states that a practitioner will not normally be prevented from takinga subsequent
appointment as receiver where the appointment as investigating accountant is by a creditor.
However, the guidance also says that the propriety of a subsequent appointment as receiver
may be called into question if the circumstances of the initial appointment as investigating
accountant are such as to prevent open discussion of the financial affairs of the company
with the directors.
Those and other issues concerning the relationship between
banks and business customers
have been addressed by the British Bankers Association in its March 1997 statement of
principles. That statement seeks to show how banks intend to work together with businesses
to get the relationship right from the outset and to help if businesses get into difficulties. My
hon. Friend made the point that we must examine the rescue culture, and we are considering
that carefully to save jobs and to save people from bankruptcy in such situations. The banks
are reviewing their experience of nearly two years operation of the statement of principles.
The framework set out in the statement of principles should
discourage any notion that the
appointment of investigating accountants will inevitably lead to the appointment of that
firm--or, indeed, any other firm--as administrative receivers. It is interesting to note that in a
recent survey by the Society of Practitioners of Insolvency for the period 1996-97,
practitioners reported that the overall business preservation rate for companies in rescue-
oriented procedures--receiverships, administrations and company voluntary
arrangements--was 59 per cent.
That does not mean that there is any room for complacency.
The Government want as many
companies as possible to be encouraged to overcome any short-term financial problems that
they may experience. That needs to be kept under careful scrutiny. I am glad that my hon.
Friend raised this case because it is an object for us to study. He made his case clearly and
carefully. We will consider it closely.
Question put and agreed to.
Adjourned accordingly at one minute past Three o'clock.