Vince Cable lawyers call on high court to ban former Farepak bosses from being company directors for up to 15 years
The bosses of Farepak, the Christmas hamper business that went bust leaving 116,400 people out of pocket, were accused on Thursday of being unfit to run a company.
Lawyers acting for the business secretary, Vince Cable, called on the high court to ban the former Farepak bosses from being company directors for up to 15 years.
Malcolm Davis-White QC, for the Insolvency Service, part of the business department, said Farepak’s former bosses, including Sir Clive Thompson, a former president of the CBI and chief executive of Rentokil, had taken “unreasonable risk” with prudent savers’ money.
Davis-White said Farepak was still accepting “about £1m a week” from customers on low incomes right up until its collapse in October 2006 even though the company had “identified a risk” that it might not have enough cash to pay its suppliers as far back as November 2005.
“With alarming cashflow projections available from early April 2006 warning of a lack of sufficient cash in the group from October 2006 onwards, various unsuccessful attempts were made by the group to find a solution to the funding crisis,” Davis-White said.
“Throughout this period, savers’ weekly payments (amounting by October to £2m per week) continued to be collected by Farepak and swept up daily into the group account, unprotected by any trust account or similar arrangement.”
Davis-White said Farepak’s customers continued to scrape together their monthly payments to the scheme with no inkling of any serious risk to their savings, while the company’s bosses were well aware of the risk of failure.
“The collapse did not come out of the blue,” Davis-White told the high court on Thursday.
“Directors tried one possible means of raising finance after another. But nothing came of any of these.
“The collapse of the group left tens of thousands of Farepak savers, whose socio-economic profile meant they were drawn from some of the most financially vulnerable members of society, out of pocket for Christmas 2006 and with no prospect of obtaining either vouchers for Christmas 2006 or any immediate distribution in relation to their claims as unsecured creditors.”
Davis-White indicated that Farepak might not have collapsed if its funds had not been “swept up every night to EHR [Farepak’s parent company, European Home Retail]”. At the time of the collapse, Farepak was owed £35m by EHR, which was chaired by Thompson. EHR also collapsed.
The judge, Mr Justice Peter Smith, described Farepak’s business model as a “helpful arrangement where they get the money 12 months in advance”.
Neil Gillis, a former chief executive of Blacks Leisure, and five other directors, are also facing the threat of being banned from standing as company directors for between two and 15 years. Two others have already agreed not to act as directors.
Suzy Hall, a former Farepak saver who set up a campaign group, Unfairpak, said she was “delighted” that the legal proceedings had finally begun five and a half years after the collapse.
“We hope justice will finally be served in respect of 116,400 prudent Christmas savers who had £30m taken from them and their Christmases ruined,” she said.