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The boss of the company behind Farepak, the Christmas hamper savings group that collapsed eight years ago, has been accused of deliberately misleading his fellow directors and masking a financial vulnerability that left more than 100,000 customers unable to get hold of their savings before the festive season.
The latest attempt to hold bosses to account for one of Britain's most infamous corporate scandals comes from the Financial Reporting Council (FRC), which is responsible for enforcing disciplinary matters covering the accountancy profession. It has powers to impose heavy fines on William Rollason and even strike him off.
The FRC's intervention will come as a surprise to many Farepak campaigners as a high court judge this summer delivered a savage attack on business secretary Vince Cable for seeking – and failing – to have Rollason and other directors struck off.
"Not only did the directors do nothing wrong," Mr Justice Peter Smith said, "but they made genuine, strenuous efforts to save the group and the depositors."
Formerly the chief executive of parent group European Home Retail (EHR) as well as a director of Farepak, Rollason will vigorously contest the FRC allegations. A tribunal hearing is expected in the new year. His lawyer, from DAC Beachcroft, said the allegations against Rollason had been tested before Mr Justice Peter Smith, who gave an "express and very clear complete exoneration" of them all.
Nevertheless, the FRC has filed a formal complaint accusing Rollason of three actions that gave a misleading impression of the financial position of either EHR or Farepak. It is alleged that he:
• Wrote and distributed a memo that he knew to be misleading to fellow EHR directors detailing the company's financial position in February 2006.
• Days later signed a letter on behalf of EHR stating that the company would continue to support Farepak to enable it to meet its liabilities as they fell due, knowing this to be misleading.
• Signed the financial statements of Farepak knowing that they contained misleading assertions about the financial undertakings EHR had given to support the company as a going concern.
The FRC is determined to bring the accountants involved in the 2006 scandal to book. As well as pursuing action against Rollason, last month it filed a formal complaint against Farepak's auditors, Ernst & Young, and the accountancy firm's former senior partner, Alan Flitcroft. The auditors allegedly failed to properly consider Farepak's ability to continue as a going concern. These accusations are contested by Ernst & Young and Flitcroft.
Swindon-based Farepak took deposits of between £35m and £41m from more than 100,000 customers – many of whom were women on modest incomes – between January 2006 and the group's collapse eight months later.
Savers believed they would receive hampers or vouchers that they could use for Christmas gifts. Company literature had told them: "As one of the founding members of the Hamper Industry Trade Association, we adhere to the HITA Code of Practice to ensure the security of your savings and the safe delivery of your hampers and gifts."
In the end, they got almost nothing.
Instead of being ringfenced, their deposits had been swept up on a daily basis by parent group EHR, which had large debts to Bank of Scotland, now part of Lloyds Banking Group. As a result, Farepak became an unsecured creditor of EHR.
Earlier this year Rollason and eight other directors all challenged the disqualification action, and halfway through the trial, Cable dropped the case – leaving his department's actions heavily criticised by high court judge Mr Justice Smith.
Four years ago liquidators from BDO launched legal claims against the directors. These resulted in an out-of-court settlement under which £4m, including legal costs, was paid to BDO without directors admitting liability.
The sum recouped for Farepak savers was further improved in the wake of this summer's failed director disqualification trial, when Bank of Scotland's parent Lloyds Banking Group – heavily criticised by the judge – agreed to make an ex-gratia payment of £8m to the liquidation process. This was on top of an initial £2m payment to the compensation fund.
Mr Justice Peter Smith said the bank had not only resisted requests to ringfence funds, but had encouraged the group to continue taking deposits when it knew Farepak was in serious trouble.
"The bank had, as I have said, almost a pride in their strong attitude, but they went beyond that, of course, because they in effect forced the directors to carry on in September/October collecting deposits … at a time when they believed [the bank would go bust],"
Bank of Scotland's ex-gratia payment came after it received a furious letter from Cable, demanding a response to the judge's remarks from the now taxpayer-backed bank.
BDO has as so far recouped 32p in the pound for Farepak savers, while the government-established Farepak Response Fund has added a further 17.5p in the pound.
