A True and Factual Account of Fraud and Corruption
This section sets out how many of the participants in the decision-making process had multiple roles and significant conflicts of interest which, we contend, would have impacted their ability to act in the best interests of hibu plc.
Chairman buying both Shares and discounted Debt
· 15 November 2011 RNS - on his purchases of 2,610,000 shares (for about £100,000) and $1 million of debt (for £200,000) on the same date
Wigley: "When I became Yell's Chairman, I was convinced that, with the right leadership, Yell's business had huge potential and that it could manage its debt structure. Having now recruited a world class management team and finalised exciting plans to realise that potential, I am convinced about the strength of the company. I am now backing my conviction by making a further substantial investment in the company."
News of a substantial Director share purchase helped to lift the share price by about 60% on the day, but the debt purchase was largely overlooked.
Wigley held multiple roles as Chairman of hibu, a lender to hibu, hibu’s key negotiator in the restructuring talks between hibu and its Lenders, Wigley was a shareholder of hibu, and a Director of multiple subsidiaries, His service contract, along with other Directors was transferred to one of these subsidiaries for payment of his salary. hSG contend that he would have been unable to reconcile the duties of each role with his personal interests.
As chief negotiator in the restructuring talks that followed in 2012, we believe that Wigley’s action put him in a seriously conflicted position, whereby any decision he made was liable to be influenced by personal considerations which would inevitably be to the detriment of another group of stakeholders.
Furthermore, as no RNS was ever issued to confirm the disposal of Wigley’s debt holding, it can only be assumed that he still holds the debt.
If this conclusion is correct, it can also be deduced that Bob Wigley would actually have made a considerable profit from buying debt at a heavily discounted price, under the terms of the restructuring, far exceeding his ‘loss’ on the shares he had purchased on the same day, whereas shareholders lost everything.
Wigley, hSG contends, had effectively managed to transfer some of the company to himself.
At the hibu EGM of 4 December 2013, Phil Bowers (representing the Deloitte administrators) stated that Deloitte had only been appointed as administrators to hibu plc on 27 November 2013.
He admitted that another Deloitte department had been involved in providing advice to the CoCom of Lenders for a period of 6-12 months; but that a system of ‘Chinese walls’ at Deloitte meant that he would not be aware of the detail of those discussions.
Further information was then provided by Deloitte subsequent to the EGM.
· 15 January 2014 and 14 March 2014 - Joint Administrators’ Statement of Proposals documents, SIP16 Letter, Appendix 7
Bowers: “the Administrators have had no prior involvement with either the Company or the Group. For completeness, the Administrators confirm that Deloitte LLP (“Deloitte”) has been engaged by the Co-Com since 18 September 2012 to prepare an Independent Business Review and Options Analysis, in conjunction with the financial and legal advisers to the Co-Com. This review was prepared to assist the Lenders in their restructuring discussions.
A separate Deloitte team was engaged by the Group (at the instigation of the Lenders) through engagement letters dated 23 November 2012 and 18 December 2012 to advise on the tax and accounting aspects of the restructuring respectively, Given the size of the Group, there have been a number of smaller engagements between Deloitte and the Group, including IT Due Diligence. Internal Audit and employment tax advice. The Administrators had no direct involvement with any of these engagements.”
· 29 October 2009 from Reuters – Yell sets last debt deal deadline, court looms
"Where there is a diverse lending group it can be difficult to corral creditors into a deal," said Phil Bowers, a restructuring partner at accountancy firm Deloitte. Bowers said options such as a scheme of arrangement -- or, in more extreme circumstances, a company voluntary arrangement or pre-pack administration, -- can be used to encourage Lenders to back a deal. "A consensual solution is the aim but a robust 'plan B' can be useful to help such a deal come about," he said.
According to Phil Bowers ‘LinkedIn’ profile at the time of the restructuring, he was also a Partner in the restructuring services department at Deloitte which he had been in since 1993.
There is little doubt that Phil Bowers would therefore have been aware of the ‘Business review and Options Analysis’ provided by his own department for hibu in September 2012, and that he has extensive links to Yell restructuring going back at least to October 2009 when Bob Wigley was in charge of the refinancing completed in November 2009.
Shareholders at the hibu EGM queried the apparent ‘conflict of interest’ arising from Deloitte having both advised the CoCom of Lenders and then been chosen as administrator; and it was suggested that an independent administrator be appointed in addition to Deloitte to ensure impartiality.
Bowers however declined the request, claiming that there was no conflict of interest and “all ethical checks had been met”. He also agreed to meet with shareholder representatives and ensure that all concerns were addressed.
hSG contends that Phil Bowers, and Deloitte were NOT impartial in the actions that they took subsequently, which was to sign off the administration of hibu PLC despite numerous queries being raised with them which were inadequately answered. hSG also believes that Deloitte were intent on pushing through the restructuring due to the lucrative fees they earned from it.
Deloitte’s attention appears to us to have been on protecting the interests of the subsidiaries, above those of the plc. When questioned directly about their lack of interest in recovering over £1 Billion owed to hibu plc by the subsidiaries, Phil Bowers commented on 12 February 2014:
“We have not demanded the loan from BV as, given the assets and liabilities of BV and the subordination of the Company’s debt to the debt of the Lenders, we do not consider there to be any reasonable prospect of the Company recovering any part of that debt. Therefore the cost in seeking payment, whether through a demand or a winding up petition, is not justified and not in the interests of the Company’s creditors or its other stakeholders.”
When hSG also confronted Deloitte with a question about their apparent conflict of interest, Bowers replied:
“Deloitte LLP has robust procedures in place to identify and manage any potential conflicts of interest. This is required by our various regulators, including the Institute of Chartered Accounts of England and Wales (the “ICAEW”). We are satisfied that these have been complied with in this matter and that our appointment as administrators of the Company is entirely appropriate”
hSG finds it astonishing that Deloitte can cite regulation by the ICAEW as evidence of no conflict of interest, especially given that Neville Kahn, the senior figure among the three Deloitte administrators for hibu plc was Chairman of the ICAEW at the time the statement was made. Notably, Kahn has subsequently resigned from that post pending investigation into the conduct of three Deloitte administrators (including himself) in relation to the administration of Comet plc.
· McCusker case filing
James McCusker states in his lawsuit, “In November 2012, Mr. Pocock stated that it was hard to get hibu’s auditor, Deloitte, on board with the Transition Strategy because Deloitte did not understand how it could work.” Pocock’s statement indicates that Deloitte were actively working on the full Transition Strategy a full year before the EGM.
In the run up to the EGM of 4 December 2013, hSG were carefully monitoring the responses by the nominee banks to ensure all were compliant with our members’ requests to utilise their voting powers correctly at the EGM. One institution that failed to act on behalf of our members was HSBC Invest Direct. None of the members received a response from HSBC regarding the voting rights. hSG had no choice but to advise all members to move their accounts from HSBC to other providers who would comply with our legally rightful requests to have their vote used as they wished.
hSG conveyed our fears in a press interview with The Independent some TEN WEEKS before the EGM
“Many of the group’s members are small investors who are not on the hibu register as they hold their shares through nominee accounts belonging to big banks and stockbrokers. Mr Dearing claimed some of these firms, including one major high street bank, have been unwilling to help, even though City rules put an onus on nominees to act in the best interests of their clients”
However, due to the time frames involved not all members managed to carry the transfer away from HSBC out, and we totalled the amount of shares “stuck” in HSBC to be around 160 million. The group were not overly concerned as we believed that no one holding shares would actually vote for their shares to become totally worthless.
However, at the EGM we learned that an astonishing 159 million shares (7% of those in issue) had been voted in favour of the Board’s proposals to hand control of the company over to Lenders and make the shares worthless. It is reasonable to conclude that HSBC had expressly acted against the wishes of shareholders and were intent on preventing them from exercising their legal right to vote.
While this action did not affect the outcome of the EGM, at which all the shareholder-proposed directors were ‘voted in’ by a large majority, it does beg the question why HSBC would actively seek to over-ride clearly expressed shareholder intentions.
Who did shareholders have representing their interests?
Shareholders were always ‘stakeholders’ in hibu, as confirmed by the Deloitte administrator Phil Bowers at the EGM of 4 December 2013.
However, we can find no evidence that, from the moment that Goldman Sachs and Greenhill were appointed as “advisers” to hibu in May 2012, there was anyone actively representing the shareholder position. This section highlights the known participants in the restructuring discussions and explains why they cannot in any way be considered to have been impartial let alone sympathetic to the shareholders’ position.
Appointed as advisers to Yell in May 2012, they were substantial Lenders under the 2009 agreement so would inevitably have been partial to lender interests. Many articles in the Media around the time of Yell/hibu’s collapse suggest that Goldman Sachs were in fact pulling the strings.
Greenhill & Co were appointed as advisers to Yell Group plc in May 2012. One of the founder members of Greenhill was James Lupton CBE, former deputy Chairman of the collapsed Barings Bank and currently co-Treasurer of the Conservative Party, who is well known to Bob Wigley. Both had also worked very closely together for about 2 years in the early 2000’s, when Merrill Lynch (Wigley) and Greenhill (Lupton) had been the main ‘advisers’ on the highly complex and extensive restructuring of Cable and Wireless.
According to the Evening Standard on 19 September 2013 (http://www.standard.co.uk/news/london/the-power-1000--londons-most-influential-people-2013-deal-makers-the-city-8825923.html) James Lupton (the chairman of Greenhill Europe) who was then ranked number 21 among the most influential business people in the City of London, played a key part in the restructuring advice provided to hibu.
“As Conservative Party co-treasurer, the City financier must pass around the hat to fund David Cameron’s bid to remain in Downing Street beyond the 2015 general election. The former Barings banker marked 15 years since opening Greenhill’s European office by advising Tesco on its withdrawal from America and restructuring Yellow Pages owner Hibu.“
Linklaters were advisers to the CoCom. They assisted administrators Deloitte when batting back questions (intended for the hibu Directors) at the EGM and in subsequent discussions. Indeed, all post-EGM meetings between hSG & Deloitte were held at Linklaters offices with a legal team in attendance.
The law firm Herbert Smith Freehills has a lengthy association with Yell/hibu, having provided advice on multiple key events in the company’s history.
One of its partners, Ben Ward, advised on the purchases of TPI and TransWestern in the mid-2000's which saddled the group with very high levels of debt. Both Ben Ward and another HSF partner, Kevin Pullen, also “advised Yell on its 2009 £4 billion debt restructuring, including its £660 million placing and open offer; and its 2013 £2.3 billion debt and corporate restructuring”, according to their career profiles.
HSF also appear on the Yell ‘2009 Lenders list’ in exhibit B of The Eastern New York Bankruptcy Court Case Nos. 14-70323 (REG) the contact details of Ben Ward and Kevin Pullen shown, although the amount of debt they held (or were responsible for) is not listed.
The price of secondary debt had fallen to about 30% of its face value when restructuring discussions commenced in May 2012, to which HSF (as Yell’s lawyers) would have been party. All of the restructuring options under discussion then were also intended to benefit the Lenders in particular, or the Lenders would never have agreed to them. So, it is reasonable to conclude that HSF had a personal interest in the result of those restructuring discussions too.
Indeed, HSF were advising the Directors, while also in a position to apply pressure on them as Lenders.
When hibu shares were suspended on 25 July 2013, hSG pressed for an EGM to challenge the outcome of the restructuring discussions, and obtained enough support for hibu to announce on 23 October 2013 that one would be convened. hSG had requested that resolutions be included that would allow 10 shareholder representatives to be added to the hibu Board if elected.
On the same day, 23 October 2013, HSF sent threatening letters to each of the shareholders who were up for election as Directors of hibu, warning that “Absent a successful restructuring…You should not under-estimate the adverse reaction which you will face from creditors…” In that letter, they also asked that further details of the proposed Directors be sent to Ben Ward at HSF.
On 6 November 2013, a circular from hibu to shareholders then announced that the EGM was due to take place on 4 December 2013. But it contained a further threat, this time to all shareholders, that hibu plc would be put in administration if the hSG-nominated Directors were likely to be elected.
On 27 November 2013, just one week before the EGM, the Board of Directors then carried out their threat and put hibu plc into administration. Although the shareholder representatives were then legitimately voted in at the ensuing EGM, the administrators from Deloitte refused to recognise them.
The selected restructuring option therefore went through unchallenged and, under its terms, Lenders had their debt holdings written down by 35% from £2.3 billion to £1.5 billion but assumed 100% ownership of the company whereas shareholders were eliminated completely.
Every £1000 of debt (face value) had been worth about £300 prior to the restructuring on the secondary debt market. However, after the restructuring went through, with the company in effect re-financed, it would have had a face value of £650 (i.e 1.5/2.3 * £1000) in the newly ‘restructured’ hibu and been worth something close to that figure.
The inference of this is that the value of the debt holding would probably have doubled as a result of the restructuring and explains why it would have been so attractive to many ‘vulture funds’ which hSG believes bought large amounts of discounted debt to become the ultimate owners of the company.
HSF had already earned substantial fees for providing legal advice to hibu and dealing with all communications to shareholders. Any debt held by HSF also stood to increase significantly in value mitigating the loss which they would have incurred as ‘Lenders’ under the 2009 facility.
hSG believes that there was therefore a conflict of interest in the actions taken by Herbert Smith Freehills. Their unwarranted threats towards shareholders were unprofessional and, in our view, completely unacceptable from a legal firm of HSF’s standing. We feel that they should be carefully investigated, and that paperwork relating to the minutes of meetings etc, will be more readily available at their premises.
The series of threatening letters highlights the conflict of interest inherent in ostensibly representing the Directors of hibu PLC, while privately being a hibu debt holder. It begs the question, on behalf of which creditor(s) the series of ‘threatening’ letters was really being written, given that two partners at HSF were shown on the Yell 2009 Lenders list.
Shareholders were reliant upon Bob Wigley to support them, conscious that on 30 July 2012 he had stated his intention of “safeguarding existing shareholders' interests to the fullest extent possible”.
But Wigley was also seriously conflicted from the moment that restructuring negotiations had commenced with the 2006 Lenders in late 2011, and then with the 2009 Lenders from May 2012.
First, this was because the debt he held ($1 million bought for only £200,000) was set to increase considerably in value as a result of the ‘restructuring’ and would easily offset the loss of the £100,000 paid for the shares he had bought on the same date (15 November 2011). And secondly, on account of the fact that he was ‘incentivised’ by an additional salary of £120,000 per annum for his ‘extra work’ during the restructuring, and an additional £20,000 per annum car allowance.
On the one hand, Wigley verbally appeared to champion shareholder interests and supported the company by buying shares. But, on the other hand he was preparing to hand the company to the Lenders against shareholder interests, and while he bought higher reward debt, he ensured he was compensated by a higher salary increase than he expended in his share purchase.
In fact, he placed further pressure on hibu plc’s accounts ledger through his enhanced remuneration package, after he had presided over the decision that the company should default on its debt repayments.
His superficial support for hibu plc and its shareholders masked his personal agenda to benefit from a debt purchase and to take advantage of his position to draw down increases in salary, expenses and bonuses, before the company was officially passed to the Lenders.
Wigley commented in his Chairman’s letter on 25 July 2013 when shares were suspended and declared worthless, that he had “vigorously argued” the case for shareholders.
However, there was no evidence of this. Presented with the perfect opportunity to explain the actions that he and the other Directors had taken in support shareholders at an EGM convened for 4 December 2013, Wigley first issued a threat to shareholders to put hibu plc into administration if a significant number of shareholder-representative Directors might be elected, and then carried out that threat exactly one week before the EGM was to be held.
The only conclusion that can be drawn is that no participant in the restructuring had the interests of the shareholders at heart, and the majority were solely interested in what would benefit themselves and the Lenders most.