Examination of Witnesses (Questions 440
- 450)
WEDNESDAY 28 OCTOBER 2009
MR MICHAEL
OAKES
Q440 Chairman:
Thank you very much indeed for your insight into the business
and for fully answering our questions.
Mr Oakes: There were a couple
of things you said about lessons learned. One of them would be
to change the leadership quicker.
Q441 Paddy Tipping:
Are you talking about the government?
Mr Oakes: Perhaps that as well
but that is not my responsibility. Within DFB there was a point
when we perhaps needed a different skill set than some of the
people we had leading the business and we should have perhaps
changed that. I believe we should have changed that sooner. Once
we had PwC imposed on us by the bank, which was from October onwards,
it became very difficult to then be able to make those changes
in the way you wanted to. Staying out of trouble would have been
the sensible thing to do.
Q442 Lynne Jones:
Is that entirely with hindsight or were these issues that were
being discussed?
Mr Oakes: They were issues that
were being discussed and the board regularly looked at whether
the equity team and the board itself and the leadership of the
board was right. It was debated. Were the people, including ourselves,
still adding value? With hindsight, we perhaps should have changed
them sooner but it was debated on quite a regular basis.
Q443 Lynne Jones:
What do you think were the factors that made it difficult for
you to take those decisions?
Mr Oakes: The consensus always
was it was not the right time. Looking back there is never a right
time. Just do it.
Q444 Lynne Jones:
People did not want to grasp the nettle?
Mr Oakes: There was always something
round the corner. We spent a lot of time looking for a strategic
solution with Dairy Farmers of Britain and we went down a lot
of avenues on that. There was always something just round the
corner which stopped us making some of the changes we perhaps
should have made.
Q445 Lynne Jones:
Hoping for something to turn up?
Mr Oakes: No. There was a bit
more than hope. There was always something that you could nearly
touch but not quite.
Q446 Mr Williams:
From some of the comments you have made, I almost believe that
PwC played a very positive part in this. Their actual role was
curious, I thought, because at one time they were advising you.
They had responsibility to the bank as well. They then advised
the bank to lend you another £13 million or something like
that and then, within a week or a fortnight or so, they were the
receivers of the business.
Mr Oakes: As I said earlier, they
were imposed on us by the bank. We paid their fees. They reported
to the bank and if we were lucky as a board we got to see what
they said, in reality. It was not a comfortable relationship from
where we were. The workload they created for the executive, in
my view, took the executives' eye off running the business because
PwC were running them around ragged. They wanted a report on this,
this and this. The executive could not run the business because
we had PwC coming in, looking at the five to three strategy, looking
at selling. Initially, they were the bank's advisers in the business.
Then they were selling the process and then they were the receiver.
It was almost a seamless process.
Q447 Chairman:
There has been a lot of contention about the fact that farmers
lost their April milk cheque and the question was should you have
drawn stumps earlier, when you could see that the end was nigh;
whereas the alternative, dealing with a spring flush in an orderly
manner, was an objective worth having, therefore soldiering on.
Why did you not pull the plug earlier?
Mr Oakes: As I said earlier, we
had Pinsent Mason literally advising the board on insolvency matters.
They were there at the side of me, John Grantchester and the rest
of the board, making sure that we were solvent and that, at any
point, we were not trading as an insolvent business. We were very
conscious of that, not just for the members but other stakeholders,
including the employees. We were at all times trying to make sure
that there was still a way out of this or we believed there was
a way out of it and we were not trading in an insolvent way. The
bank also were quite cute in making sure we were always funded
to the point they wanted us to be funded to. The only time initially
we needed an over advance was to pay the milk cheque. They would
give us an over advance because you have a massive spike when
you pay £17 million or £20 million out. You have another
advance for maybe five million because you do not have enough
capital in the business to pay the milk cheque and then the money
comes in so it goes back down. They would make sure that you were
funded to the point they wanted you funded to. You were a funded
business with funds.
Q448 Chairman:
The hard reality is, at the end of the process, farmers missed
out on a month's worth.
Mr Oakes: You also had the bank
watching the board, making sure that I was not looking after the
farmers.
Q449 Chairman:
I am asking the question on behalf of the many farmers who have
written to us, who do not understand from their perception why
it was that the business did not cease trading earlier—their
perception, rightly or wrongly. They are sitting there in the
middle of the dairy thinking they will send the milk off and they
are going to get paid for it. The reality dawns. Receivership.
No milk cheque. They are saying, "If you knew it was that
bad, why did you not stop then? Maybe we could have found some
other outlet for the milk." From their point of view, they
feel cheated.
Mr Oakes: When there was no way
out, that was the day we called the receiver in.
Q450 Chairman:
For the record, because people are going to read what you say,
you are saying to me that you as a board continued to trade the
business "as normal" because you firmly believed that
you could find a way through the difficulties and therefore pay
farmers for the milk that they had supplied?
Mr Oakes: Until we lost the Co-op
contract and that became public knowledge, if the 523 project,
as you heard last week, had turned the liquid business round,
we could still supply Tesco. We could still supply the Co-op.
The liquid part of the business was the bit that was dragging
us down in reality. We had addressed that. The farmers had taken
the hit of the £10 million costs in their 2p price reduction
and the business was starting what we had challenged the executives
to make it do. When we lost the Co-op contract, then we thought
where do we go now. The Co-op were made fully aware of the potential
consequences if we did not get that contract. When we lost that
contract, it became very clear that we needed a managed exit that
did least damage to all stakeholders. It was only at that point.
We were still looking for a managed exit. Whether that was parking
various parts of the business and various members with other PLCs,
with other co-ops and creating the least damage, that was what
our focus went onto at that point. It was only when the bank would
not fund us to get through that process that we had to call in
the receiver.
Chairman: Thank you very much indeed
for the candour of your remarks. It has been very useful. Can
I remind colleagues that in a moment we are going to adjourn the
Committee but we recommence with the Minister at 5.30. Thank you
very much.
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