Memorandum submitted by Mr Philip Moody
(DFoB 42)
RBS WITHDRAWAL
Prior to pursuing the ACC opportunity, DFB had
encouraged a club of four banks to commit to an involvement in
supporting DFB's strategic implementation. It was this work that
led us to believe that we had a total investment capability of
the range of £100 million to £150 million quoted by
me during my evidence.
The way in which the banking approval system
worked at the time was for a relationship of confidence to first
be established by the banks in (a) DFB as a company, (b) DFB's
Management and Board, and (c) DFB strategic mission. The banks
would then maintain a regular dialogue with DFB until a hard acquisition
target was alighted upon. At that stage, each bank formed a transaction
team which received and evaluated the same information as was
available to DFB itself (in the case of ACC, primarily the Information
Memorandum issued by HSBCib, DFB's Acquisition Plan and Financial
Projections, and subsequent due diligence reports. At each stage
of the process, DFB required its banks to confirm their support
for the bids submitted and this required formal credit approval
by each of the banks concerned.
I have reviewed my files and have been unable
to find any direct reference to the reasons given by RBS for their
early withdrawal. However, I have consulted with my colleagues
in Smith & Williamson who were involved at the time and we
have a vague recollection that it related to a concern at a high
level in the bank's organisation about a potential over exposure
to the sector. I recall the acquisition finance team at RBS that
were hoping to fund the transaction were frustrated by the bank's
decision. We know that the RBS Group were lenders to other major
dairy companies. I am sorry that I cannot be more helpful.
SMITH & WILLIAMSON
FEES
Finally, I promised to advise you of the extent
of fees charged by Smith & Williamson in the year ended 31
March 2009, and that amount was £387k.
I have reflected on your Committee's questioning
of the relationship between DFB and Smith & Williamson in
the context of my directorship, and wish to add that professional
advisers constantly find themselves in circumstances where the
nature of their advice directly influences the extent of work
that their firms are required to undertake. This sometimes extends
into situations which involve personal appointments, such as that
held by me as a director of DFB.
For example, Stephen Oldfield is a partner in
PwC and his position as Joint Receiver and Manager is a personal
appointment. He has a similar conflict of interest between his
personal duty to maximise returns for the debenture holder and
minimise the costs of the receivership to creditors whilst having
a corporate duty as a partner in PwC to generate fees for the
firm. In excess of £2.7 million has been paid to PwC to date
in respect of receivership fees.
As a matter of ordinary course, professionals
rely on their internal processes and personal integrity to manage
conflicts of interest in an open and transparent way.
I would also point out that other conflicts
existed amongst DFB directors in that each of the farmer directors
were faced with a direct conflict of interest when the milk price
to be paid to farmer members was debated by the Board.
It is the recognition of these conflicts within
a Board that has resulted in reporting standards requiring disclosure
of transactions with related parties in companies' financial statement.
The fact is that conflict exists, and the important
issue is to ensure that they are managed, transparent, governed
by suitable processes and fully disclosed.
Philip Moody
January 2010
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