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Column 920up to the maximum allowed under Inland Revenue rules. There does not seem to have been much of a link between the benefits they paid themselves and the level of contributions to the scheme made on their behalf.
Not content with increasing their benefits under the Teampace scheme, Spiers and Shaw apparently decided to set up a special executive pension scheme. They called it the K and M scheme. It seems that it was principally for the benefit of themselves and their wives. The decision to set up that scheme and to transfer moneys out of the Teampace scheme was, of course, made by the trustees of the scheme--in other words, Spiers and Shaw again.
Money was transferred out of the Teampace scheme in the form of property. The property concerned was situated in Redditch, in the west midlands. A 999-year lease on the property was bought by Teampace Holdings in September 1990 from a firm called Halfine Ltd., which--surprise, surprise--was a wholly owned subsidiary of Teampace Holdings. Halfine acquired property from JLS Engineering, which was a firm that had--hon. Members have guessed it--been taken over by Teampace.
A price of £775,000 was paid to purchase that lease by the Teampace pension fund. Six months later, the freehold interest on that property was transferred to Messrs Shaw and Spiers, as trustees of the new executive scheme. At that stage, they secured an independent valuation of the property, but for £485,000. Quite how that property lost some £300,000 in value in six months is not clear. But then again, shady property deals appear to have been a forte of Messrs Shaw and Spiers.
Another property in Watford owned by the scheme did not collect any rents from tenants for a long period. That may seem surprising, until one finds that the tenant of the property was a firm called Wild Barfield. The directors of Wild Barfield are, of course, Messrs Spiers and Shaw. They may have got away without paying rent, but the losers of that failure to collect rent were, once again, the Teampace pension fund and my constituents and those of my hon. Friend and other hon. Members.
The receivers of Teampace Holdings later appointed independent trustees to try to sort out the mess, and for the past two years they have been trying to recover as much money as possible. Recently, there has been an out-of- court settlement, but what has happened to Messrs Shaw and Spiers ? It seems clear that they were involved in a breach of trust, perhaps even in fraud. But the matter was never referred to the police. A dossier on the case was submitted to the Department of Trade and Industry on 29 March 1993 by the receiver. The response from the Department was silence, until the early part of this year.
My hon. Friend and I wrote to the Minister asking what he was doing in response to the horrendous story that had been put before him. Would Shaw and Spiers be disqualified from being company directors in view of the Teampace affair ? Not only did the reply that we received on 22 June 1994 deny us access to the facts that had been laid before the Minister for the best part of a year, but effectively it also said that we could not do anything about the Teampace saga, because the time limit for proceedings on that issue expired in January 1994.
The implication was that lack of resources had prevented the Department from taking action until now. That seems to betray a weird set of priorities. The Department of Trade and Industry is apparently prepared to spend thousands of pounds on glossy publications and to devote hundreds of hours of staff time to deregulation
Column 921gimmicks that very few people appear to want, but when it comes to bringing crooks or wrongdoers to justice, and standing by people who have lost their pension entitlement, their security in their old age, suddenly the Department cannot find the resources to do that. Ministers have assured me that things will be better in future, but Shaw and Spiers are still company directors to this day of, among others, a firm called Dando Drilling International. Still no criminal proceedings have been brought, and my constituents and those of other hon. Members still stand to lose many thousands of pounds in pension entitlements.
That story is a disgrace, and the Minister has some serious explaining to do.
Dr. Lynne Jones (Birmingham, Selly Oak) : I thank my hon. Friend the Member for Birmingham, Northfield (Mr. Burden) for granting me time to make a contribution to the debate on a matter which affects our constituents and others too.
It is clear that Messrs Shaw and Spiers used the same technique against different victims from different pension funds. Their modus operandi was that company X was taken over by Teampace, and Shaw and Spiers appointed themselves directors and sole trustees of the pension scheme and transferred the assets from the old pension scheme to the Teampace pension scheme. Shaw and Spiers subsequently joined the pension scheme, but did not transfer in any payments for themselves. Then Mr. Shaw wrote Mr. Spiers a little note, and vice versa, to award themselves augmented benefits, to the maximum Revenue limits.
Later, Shaw and Spiers transferred the benefits that they awarded themselves to their own pension scheme set up for that purpose--the K and M executive pension fund. Presumably it was named after Ken and Mike, who did themselves a nice little deal.
They also employed Mrs. Spiers and Mr. Shaw's secretary, Mrs. Lannigan, who appeared to be available for appointment as directors at the drop of a hat, to out-vote any directors unhappy with their plans. They also involved Mr. Michael Spiers senior--the father of Michael Spiers. I presume that those people also benefited from the Ken and Mike executive pension fund.
As a result, my constituents and those of my hon. Friend will have much- reduced pensions unless the Government act to help them--as I hope they will after this debate. Not only is there a shortfall of as much as £2 million in the pension fund as a consequence of Shaw's and Spiers's various activities, which must surely border on the criminal and appear to have been initiated with deliberate criminal intent, but the cost of the investigations undertaken by the independent trustee, the Lord Benchure Trust Corporation, must be met from the pension fund. The trust estimates that that will cost around £800,000, which will be a first call on the assets left in the fund. There will also be a bill for value added tax at 17.5 per cent. on the costs incurred by the Lord Benchure Trust and its associates in investigating the matter.
We want the Minister to give hard answers. We have heard that, due to lack of resources, Shaw and Spiers are free to continue as company directors, and that apparently
Column 922no action will be taken against them. The report available from the Department of Trade and Industry--although we cannot gain access to it--warrants the facts being reported to the Serious Fraud Office. We questioned why the Lord Benchure Trust did not do so. It said that its main responsibility is to ensure maximum recovery of moneys in the interests of scheme members, and that it does not plan to make a referral. Can the Minister help with that matter ?
As well as recovering what is rightfully theirs, the pensioners want justice. I hope that the Minister will give some hope that the Government will intervene to bring Shaw and Spiers to justice. At the minimum, surely the Government cannot take as much as £140,000 in VAT from the fund and our constituents.
The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton) : I congratulate the hon. Members for BirminghamNorthfield (Mr. Burden) and for Birmingham, Selly Oak (Dr. Jones) on securing this Adjournment debate on the important subject of pensions, which is much to the fore in terms of public interest and discussion. The matters to which they referred are of great concern to their constituents, and are matters of concern generally. I am glad that we have this opportunity to debate them, although I am sorry that the necessity to do so has arisen in respect of the instant case.
In responding to the debate, I begin by extending the Government's sympathies to those of the hon. Member's constituents who have been affected by the failure of Teampace Holdings Ltd. and the apparent shortfall in that holding company's pension fund.
I am well aware of the distress and anxiety caused by circumstances such as those. I do not suppose that any Member of Parliament will, in the course of his time here, fail to encounter such regrettable circumstances. We have seen the problems writ large in the Maxwell case, but for the individuals concerned in Teampace, the position is just as serious. I fully understand the vigour with which the hon. Members have pressed the claims of their constituents.
Following the Maxwell affair, my right hon. Friend the Secretary of State for Social Security set up the pension law review committee under Professor Goode, whose report has been widely welcomed. I am sorry that the hon. Gentleman was not more welcoming during his remarks. The report marks a great step forward. Last Thursday, my right hon. Friend commended his White Paper to the House. It confirms that he has decided to implement, as quickly as possible, all the committee's main proposals to reform the legal framework of occupational pensions.
My right hon. Friend confirmed that his top priority was to restore confidence in the security of pension schemes. Legislation is required to help that process. It will reinforce trust law as the basis for pensions law ; it will tighten up scheme management and administrative arrangements ; it will give scheme members more influence in the running of their schemes ; it will introduce a minimum solvency requirement to ensure the adequacy of pension fund assets ; and a strong regulator will be appointed. I should be surprised if the hon. Gentleman did not welcome each of those ingredients of the proposed reform.
Crucial to the defence against fraud are the trustees of any pension scheme, whose clear duty is to act in the interests of the trust members. Clearer guidelines for
Column 923trustees on the day-to-day managements of schemes and the prudent standard of care required for a scheme's investment strategy will be placed on statute.
The timely and accurate payment of contributions is essential for the well- being of any scheme. Trustees will be required to draw up, with employers, a schedule for payment of contributions. If any employer fails to adhere to the schedule, the trustees will be required to pursue non-payment with the employer and to advise the regulator and scheme members. Professionals, such as auditors and actuaries, will report to the trustees, not to the employer, and will have a duty to whistleblow to the regulator.
The occupational pensions regulator will have a wide range of powers and sanctions to be used to enforce statutory requirements. He will be able to investigate all schemes and to require those responsible for them to take appropriate action. In addition, the regulator will have the power to suspend, remove or disqualify trustees where appropriate. More serious breaches of statutory requirements will be made criminal offences, to emphasise the importance that the Government attach to them and to act as a deterrent.
If, despite all those measures, fraud occurs and the employer is insolvent and cannot meet the loss, a compensation scheme, limited to the lower of 90 per cent. of the missing assets or the amount required to restore a scheme to 90 per cent. of its solvency level, will operate.
I agree with my right hon. Friend that the proposed legal framework outlined in his White Paper will enhance the security of occupational pension entitlement and confidence in it. Had such a scheme been in existence at the material time of the Teampace problems, perhaps the unfortunate circumstances so well described by the hon. Members might have been avoided, at least for the pension fund beneficiaries who will otherwise suffer because of the deficiency.
On the question of directors' disqualification, the following are the facts of the matter. On 8 January 1992, two insolvency practitioner partners of KPMG Peat Marwick were appointed joint administrative receivers of Teampace Holdings Ltd., the group holding company, and of the subsidiary companies in the group of which Burmans of Kings Norton was one. The administrative receivers were appointed by the group's bankers.
The Company Directors Disqualification Act 1986 provides that, when a company goes into administrative receivership, the insolvency practitioner concerned has a duty to report to the Secretary of State if it appears that the conduct of any director makes him unfit to take part in the management of a company. So that the administrative receiver can have time to consider all the relevant facts, the legislation allows him up to six months in which to make his report. In the case of Teampace Holdings Ltd., the joint administrative receivers submitted an interim return in May 1992 which indicated that at that time they did not have sufficient information to form an opinion about the directors' conduct. They anticipated submitting a full report in January 1993 ; that report was actually received by the disqualification unit in April 1993.
As the hon. Members for Northfield and for Selly Oak will be aware from the letter that I wrote to them on 22 June, it is not our practice to divulge the detail of such reports : they are privileged, and any disclosure of the detail of their contents would militate against full and frank reporting by insolvency practitioners. Such reporting is, of
Column 924course, essential if proper decisions are to be made about when disqualification proceedings are in the public interest.
I can confirm, however, that the administrative receivers' report identified what they considered to be aspects of misconduct on the part of the principal directors of Teampace, Mr. Shaw and Mr. Spiers. Those gentlemen were also the sole trustees of the group's pension scheme, which now appears to have a major deficiency of assets. When the administrative receivers' report was received in the disqualification unit, it was identified as a serious category A case. At that time, however, the unit was dealing with a substantial increase in the number of reports being received from insolvency practitioners relating to the peak in creditors' voluntary liquidations and receiverships in 1992-93.
That reflected the progress of the recession : recessions always bring an increase in the number of insolvencies, receiverships and so forth, and there was a peak of insolvency cases at the peak--or rather the trough--of this one. A large number of such cases had been identified as being as serious as, or more serious than, that of Teampace Holdings. The Insolvency Service disqualification unit must make judgments about priorities, and decide which cases are the most urgent. Prioritising the use of resources in the unit meant that, unfortunately, the Teampace Holdings case was not dealt with. I understand, however, that the new independent trustees of the pension scheme have recovered a property that was transferred out of the pension fund as a result of legal action against the former trustees.
Mr. Burden : Before the Minister moves on to the recovery of any property or moneys by the independent trustees, may I press him further on why his Department did not take action ? He said that the Teampace case was regarded as a category A problem--in other words, a high-priority problem. Yet--let us be clear about this--other priorities prevented the taking of any action that could have led to the disqualification of Shaw and Spiers until it was too late to do so.
If the insolvency unit did not have sufficient resources to deal with such problems, what action has been taken by the unit, the Minister himself or the Government to ensure that more resources are put in ? Why are there always resources with which to promote the Government's latest deregulation scheme, but none with which to bring crooks to justice ?
Mr. Hamilton : I shall deal shortly with the increase in cash resources made available to the Insolvency Service, and the longer-term options for restructuring the service to permit greater flexibility to cope with the peaks and troughs that arise from the progress of business cycles- -particularly in connection with recessions--which I hope will reduce the possibility of such cases occurring in the future. I want to adhere to the structure of my speech, however, so that the pieces hang together.
I referred to the recovery of property by the independent trustees. As a result, further legal action against Mr. Shaw and Mr. Spiers is possible. I also understand that the company's claims against Mr. Shaw and Mr. Spiers have been settled by the administrative receivers.
As I have said, the recession caused a substantial increase in the work load of the Insolvency Service and its official receivers. In 1989-90, there were about 13,000
Column 925cases, but in 1992-93 that number had risen to about 42,700. That was a big increase in the number of cases in a relatively short time, and it meant that resources were increasingly taken up in case administration and diverted from what I would see as the service's principal task--that of investigation.
The hon. Members for Northfield and for Selly Oak will no doubt be aware of the inquiry conducted into directors' disqualification by the Public Accounts Committee, following the publication of a National Audit Office report. The Committee's report and the Government's response to it have been laid before the House today, and will be published tomorrow. I can say that the report has been welcomed, and that there has been an urgent response to the criticisms contained in it.
Clearly, no regulatory agency can guarantee to institute proceedings in every case of suspected misconduct, especially when an agency's work load is subject to the sort of substantial short-term variations that the Insolvency Service has seen. However, for 1994-95, against the background of a reduced number of new cases and a significant increase in its resources, the service expects to increase the number of disqualification proceedings instituted against directors of failed companies where there is evidence of misconduct.
Official receivers will place greater emphasis on disqualification and prosecution work, and there will be an increased use of private sector professionals. At the same time, the specialist resources of the disqualification unit will be strengthened so as to allow increased concentration on unfitted conduct reports from insolvency practitioners.
There is a range of shorter-term responses to the PAC's criticisms that we are determined to make. I am concerned, however, that in the longer term the Insolvency Service and its official receivers should not find themselves diverted from their investigative tasks by any unexpected and unwelcome short-term increase in the number of compulsory insolvencies with which they have to deal.
That is why we have asked the consultants Stoy Hayward to look at the possibility of the private sector's taking on the routine mechanical processing work involved in insolvency administration, thereby offering the possibility of releasing the official receiver and his specialist staff for increased investigative work. Stoy Hayward first reported at the end of October 1993, to the effect that the involvement of the private sector was feasible.
The second phase of the firm's work--a more detailed study of the costs and benefits of involving the private sector--is coming to a conclusion, and a report is due by
Column 926the end of July. Clearly, value for money will be paramount in any decision on involvement of the private sector in the work of the official receivers, but I look to the involvement of the private sector to provide the flexibility necessary to cope with the short- term peaks in work load that produced the problems for the service in connection with cases such as that of Teampace. In securing the passage of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986, the Government gave statutory form to their commitment to ensuring that those who abuse the privilege of limited liability can be made personally liable--through actions for wrongful trading--or can be prevented from enjoying that privilege for a set period--by being disqualified. The 1986 legislation provided the statutory underpinning for refocusing the Insolvency Service's and the official receiver's role on investigation.
In the years to 1991-92, considerable success was achieved in prosecution and disqualification. The more than 2,000 individuals who have been disqualified can bear witness to that. Then, as I have already said, the dramatic and prolonged increase in the Insolvency Service's work load over the recent recession interrupted the progress being made.
The service's task is now to refocus its investigative expertise so as to ensure that those guilty of misconduct in relation to their own or their company's affairs are detected and punished. I am confident that the measures that I have outlined will enable that to happen, and will help to avoid a repetition of the cyclical difficulties that we have discussed tonight.
I do not have what Opposition Members will regard as a convincing explanation of what happened in the case that has been raised, and I deeply regret that, notwithstanding the high priority assigned to that case, it was not possible to take action against the directors, if the advice had been to do so, within the period for taking such corrective action specified in the legislation.
Dr. Lynne Jones : Can the Minister give hope to our constituents that some action will at least be attempted to bring Messrs Shaw and Spiers to book for their actions, and that the Government will help in some way to meet the shortfall in the pension scheme ?
The motion having been made after Ten o'clock, and the debate having continued for half an hour, Madam Speaker-- adjourned the House without Question put, pursuant to the Standing Order. Adjourned accordingly at sixteen minutes to Eleven o'clock.
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