Judge Points Finger at Bank After Christmas Hamper Business Collapse

Posted: 22nd June 2012

FarepakA High Court judge has pointed the finger at a bank as he analysed the demise of a Christmas hamper business which collapsed leaving tens of thousands of savers out of pocket.
Mr Justice Peter Smith suggested that HBOS bosses sat like ‘stookies’ - a Scottish slang term for plaster casts - when Farepak Group was failing six years ago.
He compared HBOS’s “hardball approach” to the conduct of Farepak directors, who had done “everything possible” to save the company.
The judge was speaking at a High Court hearing in London after a Government watchdog abandoned attempts to penalise the defendants, former Farepak bosses, by having them barred from serving as company directors.
Lawyers representing the Insolvency Service - part of the Department of Business, Innovation and Skills - halted litigation after ‘consideration of evidence’ given at a High Court hearing.
Mr Justice Peter Smith said that he had decided to make a statement because of the public interest in Farepak’s downfall.
He said that HBOS would provide no more money, was “fully covered” and recovered loans after Farepak collapsed.
“This in my view coloured the approach of HBOS and, basically, they were going to sit there - and I can use... a Glaswegian expression - like stookies, doing nothing which involves any reduction of their recoveries,” he said.
“It is striking that during the whole of the period it appears, in rough and ready terms, that further investment from the bank of between £3 million to £5 million would have probably saved the Group, but HBOS was not prepared to make it.
“It of course was perfectly entitled to do what it did and to continue to require the company to collect deposits, knowing full well that those depositors would not get their money back if the companies went into insolvency and knowing full well that those deposits would have benefited the bank alone.
“This is of course in my view completely contrary to the way in which these defendants conducted themselves. They did everything, as far as I can see, possible to save the Group.”
He added: “It is a tragedy that the depositors have lost their money... As I have shown, HBOS, in accordance with its contractual entitlement, collected in £10 million for its benefit.
“When the companies went into insolvency, a distress fund was set up for the benefit of the depositors. HBOS made a £2 million contribution to that payment...
“This is not a court of morality but I would suggest that HBOS really ought to... seriously consider whether or not they ought to make a further substantial payment to the compensation fund.”
He said that what happened, “while apparently legally acceptable”, might not be regarded as “acceptable” by the public.
Mr Justice Smith said that lawyers representing the Insolvency Service had been right to abandon attempts to have former Farepak bosses barred from being directors. He said there was “no reasonable prospect” of success.
“What is missing from that story is any justified complaint against these defendants,” the judge said.
“It is not usual to make a statement but I felt strongly in this case that all the depositors would have been left with a sense of being cheated again if they did not understand why the case has collapsed against the people who have been pursued for the last five years as being the evil people who caused their losses.”
Mr Justice Smith said that personal experience enabled him to sympathise with savers whose Christmases were ruined as a result of the Farepak collapse in 2006.
The judge described the collapse as “tragic” for thousands of families. He said he had been in a family which suffered “something similar”.
Mr Justice Peter Smith said that savers had received “virtually nothing” following Farepak’s demise. “It is not clear yet how much they will receive but it will be pence in the pound,” he said.
“It might even be single figure pence in the pound. This was particularly tragic for a large number of depositors who have saved over the year for their Christmases, only to find that they were not going to get the vouchers or hampers and it ruined the Christmases of thousands of families who could ill afford to have the loss of this valuable saving process.
“Having been in a family which suffered something similar one Christmas I can sympathise”.
Taxpayers may have to foot millions of pounds in legal bills following the abandonment of the Government’s attempt to penalise directors of Farepak, a businessman involved said.
Sir Clive Thompson - a former president of the Confederation of British Industry, ex-Chief Executive of Rentokil and one of the former Farepak bosses targeted – said that he was "extremely surprised" that the litigation was commenced.
He estimated that the litigation would cost £20 million and said that he and other former Farepak bosses would be asking the court to order the Department of Business, Innovation and Skills to foot the entire bill.