Former Farepak FD in disqualification case

The former finance director of failed business Farepak could lose his right to be a director in a UK business if High Court legal proceedings to disqualify the company board are successful.

This week it was confirmed that following a long Insolvency Service investigation, an application for disqualification orders was filed on 26 January against the board – including FD Stevan Fowler and eight other directors.

Business Minister Edward Davey confirmed: “Cases like Farepak are often very complex and complicated so take time - but we can confirm that High Court proceedings seeking disqualification orders have now started."

The potential 15-year disqualification period proceeding, “made in the public interest”, is in relation to their conduct as directors of European Home Retail Group (EHR) and its Christmas hamper savings subsidiary Farepak Food & Gifts.


On 13 October 2006 Farepak entered administration and was later placed in creditors’ voluntary liquidation, while EHR entered administrative receivership and a winding up order was subsequently made.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments

Term of penalty

mikewhit | | Permalink

Unlike motoring offences, the disqualification period does not date from the incident (in this case perhaps the winding-up), but from the close of proceedings or investigations.

If there is a long drawn-out enquiry the penalty period can extend many years after the incident itself.

carnmores's picture

these are pretty unjust and possibly a reach of the persons huma

carnmores | | Permalink

for the simple reason that they are almost impossible to defeat - does anyone know of more than ione case that has been defeated - a huge waste of resources - its all pour encouragez les autres

davidwinch's picture

A bad mistake

davidwinch | | Permalink

Farepak Food and Gifts Ltd (to give it its full name) and its holding company, European Home Retail PLC, ceased trading in October 2006.

What is interesting is that the facility which EHR had from its major banker, HBoS, came up for review annually in October.  That was at a time of year when the group had a more than average amount of cash because it had received deposits in advance from Farepak customers saving for Christmas hampers.  Cash received by Farepak was routinely lent to its parent company, EHR, and used to reduce its overdraft.  Traditionally Farepak paid its biggest bills in January / February and that was when the cash flowed out again.

So if the bank withdrew facilities for EHR (or declined to renew them) in October then inevitably EHR's bank borrowings would be relatively less and its unsecured creditors - particularly amounts due to Farepak which it had in turn received from individual Christmas hamper savers and their local agents - would be relatively more.

So this timing favoured the bank at the expense of individual customers of Farepak.

Farepak's banker was not HBoS but, of course, if EHR ceased trading it could not repay Farepak who in turn could not supply the Christmas hampers to their customers.

But was it the bank's fault that the individual savers suffered?

The October timing was, in the beginning, a consequence of the group spending £37 million in October 2000 on the purchase of an additional business, DMG.  That takeover was not a roaring success.  DMG was sold three years later for less than £5 million.

It could be said that the group never really recovered from that disastrous purchase (made prior to the appointment of the EHR board of directors who are now facing disqualification).

A further problem arose when a company with which Farepak had done a lot of business, Choice Gift Vouchers Ltd, went into administration early in 2006.  Choice used to allow Farepak credit over the end of year period, which meant that Farepak (and EHR) retained customers' cash until after Christmas.  Farepak could not find another voucher company willing to offer it that amount of credit.  But if Farepak needed its money back from EHR before Christmas that would put extra strain on the EHR overdraft at the end of the year - and HBoS were not willing to make extra monies available to EHR to fund that.

But had EHR in 2000 made that purchase on the back of cash received from Farepak's Christmas hamper customers?  Should the customers' cash always have been 'ring fenced' to protect it?  Should customers have been warned that Farepak was not a 'bank' and their savings were at risk?

As it happens, many years ago, I was interviewed for a BBC TV programme about the Farepak collapse and did a bit of research into it for the BBC back then.  The programme aired in the 'Real Story with Fiona Bruce' series at the time.

David

Sins of the past

mikewhit | | Permalink

Very interesting, David.

So perhaps that board of 2000 should be looked into as well, given that they were the ones who failed to secure the Christmas peoples' money, and misleadingly undertook the transaction with all the Christmas money in the coffers.

Otherwise it seems that if you become a board member of a company with a structural failure, you will get tarred with the brush that should have been applied to the originator(s) of that failure, despite perhaps coming in with an remit to apply best practices.

cymraeg_draig's picture

.

cymraeg_draig | | Permalink

Cutting through the various excuses, the simple fact is that customer's money was not secured. Customers paid what amounted to advance payments for goods to be supplied at Christmas, and until the goods were dispatched then morally that money should have been ring fenced. I understand that there are proposals that this should become a legal requirement - if a politician with the courage to push it through parliament can be found.

Far too often we see cases of companies taking deposits from customers even after it is obvious that they are technically insolvent.

As HMRC, the banks, etc are priority creditors, it is always the "guy in the street" who loses out in these situations, and, in my view, directors of any company which is unable to pay every penny it owes should automatically be barred from ever becoming directors again.

Harsh? maybe, but it's time we started protecting the public and not protecting incompetent, or in many cases greedy, compamy directors.

 

How does this differ from banks ...

JC | | Permalink

Perhaps someone with more knowledge could explain how this differs from the banks - in both cases

  • Money is deposited for either goods or safekeeping
  • With Farepak the money went elsewhere and goods were not delivered
  • With banks the money was used to 'speculate' on questionable areas and once again not available to repay the customer without a bail-out

The real difference is that the banks are allowed to use customers money; their argument being that any resulting profits helps them reduce the overall cost of services to the customer

Basel II really is fairly ineffectual in protecting the customers and relaxing the available instruments does not help with protection; furthermore, any proposed new rules are fast disapearing into the distance as everyones memory conveniently fades.

Now if Farepak were to ask the taxpayer for a bail-out the circle would be complete

carnmores's picture

ring fencing - morality etc

carnmores | | Permalink

i am undecided on this one - eg do accountants and lawyers who ask for fee money upfront ring fence it , did Halliwells?

and what about royalties that are due on the sales of  books or CDs etc, should there be a ring fence in these cases or is there some sort of constructive trust in operation?

cymraeg_draig's picture

.

cymraeg_draig | | Permalink

"i am undecided on this one - eg do accountants and lawyers who ask for fee money upfront ring fence it "

 

If we took money up front (which we dont) then yes I would ring fence it leaving it in our client account until the work was done & the fee payable.

carnmores's picture

thats all part of the SAR isnt it

carnmores | | Permalink

a lot of law firms that i have had to attend with clients all seem to want at least £1k  on account before they start - they send a fee note pretty quickly as well so probably do a transfer from client to office account asap - i expect that accountants probabaly as a whole just stick it in the 'office' account direct. and what about firms that take payment by DD often before the work has been done - how do they account ?

 

and boy did Halliwells rack up a mountain of debt actually more of a mountain range

carnmores's picture

well the DTI loves a soft target

carnmores | | Permalink

it simply doesnt appear to have the balls to disqualify the banks directors such as Daniels & goodwin - personally i would put them in the stocks and probably flog them as well.

talking of banks and Basel 111 ( basil basle or what ever you want to call it i go for basle the locals go for basil i believe)

back to the point , just returned fron Andorra - whilst recovering from my skking acidents i took a bit of time to check out the banks and the 'country' itself.  They seem to be still letting customers have numbered bank accounts for a bung under the table but what is worse about this country that uses the euro is their highly discriminatory laws - you need to have a full medical before you can get a work permit and you wont get one if there is a chance that your health may lead to a claim on their health service , there is virtually no employment protection - these sort of checks have been outlawed in the EU and elsewhere

the reason it is there is much the same reason as Monaco i presume so the french and spanish hierarchy can stash their cash - despite the fact that it is not part of the EU a lot of money seems to have been siphoned off by france and spain into it - Andorra is owned by the president of france and the bishop of urgell , does the pope know whats going on?

after ahem 'financial services' and tourism  shopping is its biggest export ie no vat so everybody crosses the border from france and  spain and loads up with gear - the customs pay only lip service to their border checks

banks dont you just love em

Murphy's Law

mikewhit | | Permalink

Don't worry, I'm sure Richard is onto them !