Saturday, May 10, 2014

EXCLUSIVE: The Cameron crony, the private jet company, and a crash landing that cost taxpayers £100m

Robin Southwell is one of the PM's most trusted business leaders. But there is one blot on his career. Corporate Jet Services, a company that lays on planes for the rich and famous, collapsed in 2007 – costing its main creditor, HBOS, about £100m (and helping to bring about the bank's state bailout, at vast expense to the taxpayer). Tom Harper asks what was HBOS doing lending so much money to such a small firm. And how is it that Mr Southwell and other directors of the firm ended up buying back CJS for a knock-down price?

Take a look at pictures of David Cameron on one of his many globetrotting trips to boost British trade, and there's a good chance you'll see Robin Southwell at his side. The chief executive of the arms giant Eads UK, Mr Southwell is one of the country's most respected and influential businessmen. He was appointed a government ambassador for British industry in 2011, and has accompanied the Prime Minister on trips to India and the Middle East.

In 2012, when Mr Cameron was criticized for using a rented American-made Boeing plane during a business trip to Indonesia, Mr Southwell stepped in to offer him an Airbus model from his own fleet.

The Prime Minister appears to value the assistance of the business leader in developing markets overseas. But Mr Southwell is facing some awkward questions rather closer to home – questions which should also be directed to Bank of Scotland (HBOS), the multibillion-pound bank which had to be rescued by the British taxpayer at the height of the credit crisis because of a catalogue of reckless lending that brought it to the brink of extinction.

While running EADS UK, Mr Southwell, 54, was also a non-executive director and shareholder of Corporate Jet Services, an exclusive private jet group which owned planes hired out by the likes of David Beckham, Max Clifford and media mogul Richard Desmond.

However, an analysis of the company's brief but extraordinary five-year history sheds light on some of the decadent lending policies that led, according to the National Audit Office, to each and every taxpayer forking out £7,600 to prop up the disgraced banking industry.

When Corporate Jet Services (CJS) went bust just before the financial crash in September 2007, it had assets of only £2m. Yet according to an official receiver's report setting out its assets and liabilities, the company owed HBOS an astonishing £113m.

As its balance sheet collapsed, the beleaguered bank placed the company into administrative receivership with PricewaterhouseCoopers (PwC), but then encouraged the accountancy giant to sell the profitable assets back to the same directors – including Mr Southwell – for what one expert now describes as a "knock-down price".

This decision was bizarre as the company – seemingly under the control of its directors, with Mr Southwell as a non-exec – had caused a loss to HBOS of about £100m, with the bank writing off £60m worth of debt on a single day in March 2008.

Seven months later, the British government was forced to spend more than £20bn of public money bailing out HBOS's reckless lending positions, helping to usher in the current "age of austerity" that still dominates life in Britain today.

Prem Sikka, professor of accounting at Essex Business School, said: "How can HBOS have lent £113m to a company with net assets of only £2m? Unsurprisingly, this kind of unsound judgement eventually resulted in a bailout of HBOS by taxpayers. There is a massive wealth transfer to directors who picked up assets at a negligible price, and insolvency practitioners who collected high fees while owing no duty of care to taxpayers or unsecured creditors.

"This insolvency should be examined by the Business Secretary Vince Cable. This is a huge write-off and the cost of this has been borne ultimately by the taxpayer. It raises further questions about the quality of management at HBOS and its relationship with some of its clients. The pre-pack management buy-out has enabled directors to acquire assets at knock-down prices. It has left unsecured creditors high and dry."

Mr Southwell said via his lawyers that he was appointed "at the express instruction of HBOS" to assist a company in difficulty, that at times decisions were taken with the "encouragement" of the bank and "if anyone is to blame for CJS's difficulties, it should firmly be laid at the door of HBOS".

David Cameron's business adviser said via his lawyers that his role was "legitimate and uncontroversial"; he always acted in a "prudent and professional manner" and that he was "not part of the dedicated executive management team".

When his new company bought the subsidiaries of Corporate Jet Services in 2007, Mr Southwell said he took part in the management buy-out only to save 250 jobs as there was no other alternative in the wake of the credit crunch.

Jet firm to the stars
Mr Southwell was first appointed as a director of CJS in 2002. His lawyers stated that he was a "non-executive director" and was installed "at the direct request of HBOS".

He also stressed that his involvement in the company was very much a hands-off capacity "to provide corporate governance and management advice at a board level in a non-executive role".

That notwithstanding, flight manifests from CJS, seen by The Independent on Sunday, show that Mr Southwell and his wife were passengers on one of the company's jets when it flew to the tax haven of Monaco – via Cannes – in December 2003. The Southwells were accompanied by an HBOS bank manager. His lawyers said this was a business trip exploring a "potential three-year sponsorship deal relating to an event in Monaco which had the potential to generate significant business for CJS on the UK to South of France route". They also said that the potential business partner had "specifically" asked to see one of the company's planes.

Read more, photo gallery and comments:  http://www.independent.co.uk