House of Commons Hansard Debates for 17 Jul 1996 (pt 14)

Madam Deputy Speaker (Dame Janet Fookes): Order. We must move on to the next topic.

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Belling

1.30 pm

Mr. Peter L. Pike (Burnley): I am glad once again to have the opportunity to raise issues relating to the Belling pension fund and to concentrate on issues that should have given us a red light and warning signals long before Belling finally went bankrupt in May 1992.

This is not the first debate that I have initiated on the Belling fiasco--I should call it the Belling fraud. Many former employees of that group will not get their full pension entitlement as a result of the frauds that took place. Mrs. Eileen Smith, the secretary of the pensioners' association, made it clear in a letter of 3 July to McKennas, the solicitors working with the Law Debenture Trust Corporation--the trustees--that the pensioners do not accept the liquidator's offer of £2 million.

Mr. Wignall--one of the people representing the workers who live in my constituency, although he lives just over the border in Accrington--recently received a letter from the pensions ombudsman, stating:

"There are . . . 60 other cases ahead of yours in the 'queue'."

He had requested that the pensions ombudsman investigate the problems relating to the Belling pension situation.

I accept that the Belling problem is not of the same size or extent as the Maxwell fraud, but to those involved, including many of my constituents, the effects are just as serious and the Government need to respond in a similar way. My constituents will not accept the view that Ministers have put forward that, because fewer people are involved and the scale is not the same, they should be dealt with differently.

I shall attempt to focus on how Belling was able to continue to trade when it was insolvent and to ask why the Department of Trade and Industry failed to pick that up and to stop it trading. Members of the pension fund feel that the Department has failed adequately to study what has happened since the crash of May 1992. It is the view of the pensioners' association that action could and should have been taken under the 1986 legislation. The association states that it is now certain that all the evidence in the possession of the liquidators, receivers and trustees had not been passed to the Department, as is required by law.

The issue is not of concern to my constituents in Burnley alone--indeed, a number of hon. Members have responded to their concerned constituents on the subject and another 37 have signed early-day motion 338 on the issue.

On 24 January, Charles Deacon, a lawyer, and Keith Fuller, a business man, were found guilty of swindling the pension fund of more than £2 million. The BBC special "Money Box" programme of 29 January highlighted the incredible frauds committed by Charles Deacon--Belling was not the only victim. The Minister has had a transcript of that programme. Anyone who did not see it would find that swindle and the others that Charles Deacon committed incredible and outrageous--they even involved using the name of the President of the United States.

The Deacon fraud was not the only one to which the Belling pension fund was a victim, although that would have been serious enough. Others within Belling were

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guilty of at least serious incompetence and, in the eyes of many, of fraud. Mr. Richard Belling did a last-minute deal in an earlier court case to save himself from having to go to trial. I cannot say that he was guilty of any criminal offence, but he was certainly guilty of incompetence and perhaps of desperation in trying to save his company in a way that did not add up legally and was not viable. As a result of those actions, the pensioners and those with deferred pensions stand to lose.

On 29 February, the Under-Secretary of State for Trade and Industry, who is to reply to the debate, kindly met the hon. Member for Edmonton (Dr. Twinn) and myself.

Dr. Ian Twinn (Edmonton): I am grateful to the hon. Gentleman for giving way and I congratulate him on his work on behalf of the pensioners, not just in his constituency but throughout the United Kingdom. Colleagues on both sides of the House have written to both of us, expressing their deep concern about what has happened. I am pleased that he mentioned the Maxwell fraud, because although the scale is different, for the individual pensioner's concerned it is the same. Hon. Members should be concerned about what happened.

The fact that someone can help themselves to pensioners' money must remain of great concern to my hon. Friend the Under-Secretary of State as well as to the House. I hope that because of this debate we will hear more about what can be done to stop such frauds taking place.

I wonder if the hon. Gentleman--

Madam Deputy Speaker (Dame Janet Fookes): Order. That was far too long for an intervention.

Mr. Pike: Thank you, Madam Deputy Speaker, but I nevertheless welcome the comments by the hon. Member for Edmonton and agree with everything he said. His intervention shows that this is not a party-political issue, which is important. Hon. Members on both sides of the House are equally concerned about pensioners losing what they are entitled to as a result of such actions.

At my meeting with the Under-Secretary of State, I gave him a dossier that Mr. Wignall presented to me. Along with Mr. Conquest, he has kept me fully briefed on this complex case. They are both members of the pensioners' association that represents the workers involved. To give all the facts that I have on my files relating to the case, I would need several hours and not just a quarter of an hour.

On 19 March, the Minister replied to me in writing on several matters that I had put to him at the meeting. He wrote:

"it is for the liquidators of the company to form a view as to whether The Midland Bank acted beyond their remit and in effect directed the company's affairs. If they did and could be shown to have acted as a shadow director, the liquidator of the company could, if he thought it commercially prudent, apply to the court for an order that the bank contribute to the company's assets in the liquidation which would in turn lead to a larger dividend for the pension fund. However only the liquidator has the right to make such an application and it is for him to consider the extent of the bank's involvement in the company's affairs and the costs and likelihood of success of any action against the bank.

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We also discussed at the meeting the level of compensation awarded by The Law Society. I understand that on their solicitors' advice, the trustees have accepted £577,000 by way of compensation from The Law Society together with payment of their legal costs. The sum is considerably less than the losses suffered by the pension fund as a result of the fraudulent activities of Mr Deacon and his associate and I would have been pleased to have seen a substantially higher level of compensation paid. However any settlement is a matter for the Trustees and the Law Society.

I have asked my officials to find out what the current position is relating to any disciplinary action which may be being taken or contemplated against the other professionals who were involved in the Belling affair and I will let you know the outcome of their enquiries as soon as possible."

I have written to the Law Society on several occasions, putting the case that its compensation should have been higher, having regard to other legal advice given to the pension fund and Belling at the time, and not solely the role of Mr. Deacon. Regrettably, the assistant director of the Law Society turned down that request, saying:

"My office has recently been in correspondence with Mr J Wignall who has raised the point that inadequate advice was apparently given to Mr Stewart by Messrs Vanderpump and Sykes as well as by Messrs Barlow Lyde and Gilbert. Regrettably, the opinion of this office is that any such alleged negligence would have no material effect on the Committee's decision. Section 36(2) of the Solicitors Act 1974 sets out the statutory limitations of the Fund which are to compensate an applicant for loss suffered as a result of the dishonesty of a solicitor or for hardship being suffered as a result of a failure by a solicitor to account for monies.

When reaching their decision, the Committee were of the opinion that the former Trustees of the Pension Fund had acted both in breach of trust, as they had previously been advised that they could not borrow money from the Pension Fund for the purposes of the Belling Company, and acted negligently in failing to take adequate steps to protect the money that they were improperly borrowing.

If either of these failures has its roots in inadequate or negligent legal advice taken by the former Trustees then that may well give a separate course of action against those giving the advice and in respect of which an indemnity should be afforded to the firms concerned by the Solicitors Indemnity Fund".

The process goes on and on but pensioners see no solution to their problem.

In another letter of 25 April 1996, the Minister said:

"As to action by regulatory bodies, the Institute of Chartered Accountants in England and Wales is still considering complaints made by Mr. Wignall against Mr. Keevil of Hereward Phillips, the auditors and Mr. Stewart, a director of the company. However, it does not appear that any disciplinary action is being taken by other regulatory bodies against their members in this matter."

It is not surprising that members of the pension fund feel aggrieved. They feel that the professionals and professional bodies have failed them. They are aware that recovery expenses to date total £2,281,185, with some £900,000 having gone to the lawyers. They believe that the Insolvency Act and Company Directors Disqualification Act 1986 have served no useful purpose.

We must consider the way in which costs mount in trying to recover moneys. Again, I do not make a political point when I say that, but it is wrong that people who have committed no offence should have to bear such costs to secure their entitlements.

In March 1993, a list of matters for investigation was presented to Buchler Phillips by pension fund members. Time after time, information has been presented to everyone and all the relevant organisations involved. It is clear to everyone that Belling was bankrupt long before May 1992, and it should have been clear that fraud had been committed in trying to save the company.

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I shall take a little time to give a few of the indicators that point to that knowledge, but there is a great deal of other information on our files. In order to be brief I shall use the information that until relatively recently was confidential and therefore unavailable to me, the Department and others.

In the auditors' report from Hereward Phillips dated 22 October 1991, the auditors stated that the company had incurred

"a loss. . . £6,405,369. . . during the nine months ended 29 December 1990; and at that date its current liabilities exceeded its current assets by £1,482,345."

Regrettably, the auditors were unable take into consideration the fact that the proposed sale of Compound Sections, which they believed would improve Belling's situation, was the subject of fraud using pension fund moneys.

Indeed, the next auditors' report of 3 December 1991 stated:

"Following this sale revised borrowing facilities were made available to the company by its bankers."

Yet no reference is made to the £2.1 million towards this sale from the pension fund. As had been stated in Peat Marwick's report to the trustees only a month before, this money was used in the sale and paid directly to the bank. To be exact, the pension fund bought Compound Sections, and of this money £2.75 million was used to repay the bank and to extend banking facilities. Clearly the trustees were acting in the interests of the company and Midland bank and not in the interests of pension fund members in agreeing to use funds in this way.

Mr. Stewart and Mr. Belling were guilty of allowing this to happen--indeed, of enabling it to happen. On 22 October 1991, Belling wrote to Vanderpump and Sykes, solicitors:

"In view of the results for the year the auditors have felt it necessary to qualify the audit report. However if by the time they are required to sign their audit report the sale of Compound Sections Limited, and confirmation of on-going financing from the Midland Bank plc are both available, then they have confirmed that they would be able to give a clean audit report, without qualification."

Is it not strange to allow the sale of a subsidiary at an inflated price to its own pension fund to secure an unqualified audit statement? One must ask, why did the trustees agree to such fraudulent use of the fund, and why did the auditors accept the financial statements?

In a letter dated 10 December 1991, Mr. Stewart says that the pension fund trustees have had two independent reports prepared for them in relation to the acquisition of Compound Sections. One of these, from Greig Middleton, advised the trustees:

"The value of Compound Sections if sold on an open market as a going concern would be in order of £5.25 million, on the basis of a willing buyer and a willing seller."

That proved to be far from the true value because the company was ultimately sold for £1.25 million. Belling was its major customer. On 2 December the Belling pension fund paid £5.5 million for Compound Sections. In the letter of 10 December Mr. Stewart says:

"As part of the contract between Belling and Co Ltd and the Belling Pension Fund for the sale of Compound Sections Ltd Belling warranted a profit of not less than £750,000 for both the years 1991 and 1992.

In the event that this profit is not achieved Belling will pay to the Pension Fund a 7 times multiple for the shortfall in 1991, and a 3½ times multiple of any shortfall in 1992 subject to a maximum of £1.25m in respect of each year."

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It is not even as though the trustees had not been warned about using the pension fund for such a loan. In a letter dated 19 September, Harlow, Lyde and Gilbert, solicitors, stated:

"We do not believe that the trustee has the power under the Trust Board to make loans and take security therefore.

The Trustees must determine that the investment will benefit the fund and will not place at risk the part of the fund so invested. We are concerned, given the relationship of the Company to the fund that some doubt may be cast upon the exercise of the trustees' power to invest in the manner proposed."

The solicitors also express alarm about the valuations of Belling, stating that, at £14 million, it is grossly inflated. Indeed, they go into great detail about the relationship with the bank and further show that the valuation was unrealistic.

On 21 September 1990, Barlow, Lyde and Gilbert again confirmed:

"Counsel is in no doubt that the Trustees are not empowered by the Trust Deed to make loans and take security. . . At law, investments made by trustees on the security of property must be secured by first mortgages. The Trustees will appreciate therefore, that even if we assume that the valuation of £14 million expressed in the valuation of May 1990 is accurate. . . and given that Midland Bank plc require priority of £8.5 million the maximum amount of any loan would be approximately £833,000 if the Trustees are to have benefit of this provision. Any such loan should be secured by a first mortgage. Unless the company discharges the first mortgage in favour of Midland Bank plc, there are substantial doubts as to whether the trustees can properly invest in the Company in this way."

The closing tone of the letter warns:

"if the Trustees have any doubts whatsoever about the solvency of the Company, any investment in the Company should be avoided. It is possible that if the Company became insolvent within the term of the loan the monies advanced may be irrecoverable and any security granted would be liable to be set aside."

The closing advice stated:

"Having had the benefit of Counsel's view in relation to the issues which we perceive in this transaction we cannot recommend that the Trustees invest in the company at this time."

Yet, in a letter to Midland bank in April 1991, referring to the purchase of Compound Sections, Mr. Stewart stated:

"We have now received Counsel's advice that it is legally possible for the Pension Fund to acquire this property. This amends our earlier understanding of the provisions of the Pension Trust Deed. The Pension Fund Trustees. . . are now arranging for the appropriate professional advice."

Where did that contradictory advice come from, or had the trustees disregarded the advice given to them?

In a letter dated the same day to the corporate bank manager of Midland bank, Mr. Stewart instructed the trustees that the bank

"as a condition of advancing further monies to the Group have requested that any surplus monies resulting from the winding up of the Pension Fund should be paid into the account of Belling and Company Limited with the Midland Bank.