Bust air firm may provide key to HBOS controls failures
August 28th, 2010 (edited January 6th, 2013)
[Editorial Note: This article was written in June 2010 but has not previously been published in its entirety. An edited version was published in The Sunday Times on June 27th, 2010]
Directors of an aviation business that crash landed owing HBOS £113 million in September 2007 were allowed to buy the business back from administrators PriceWaterhouseCoopers for an initial consideration of just £7.
A few months later they paid an additional £49,999 but were unable to pay the additional €10m they were supposed to pay by February 2008 to secure ownership of the most profitable subsidiary, a Germany-based aircraft maintenance company.
The administrative receivership enabled the directors of Corporate Jet Services to avoid paying millions of pounds to unsecured creditors, including airplane lessors and Her Majesty’s Revenue & Customs. HBOS was surprisingly forgiving, writing off £60m of CJS’s outstanding overdraft of £81m in March 2008.
Directors who benefited from the deal included David Mills, who had a close relationship with HBOS. As chairman of Quayside Corporate Services, he either advised or sat on the boards of scores of the bank’s “mid market, high risk” corporate clients, many of which went bust between March and October 2007. Other directors who participated in the CJS “phoenixing” included Robin Southwell, chief executive of defence and aviation group EADS UK and a close business associate of Mills, and Tony Shakesby, a former PwC chartered accountant.
In early 2007, HBOS asked PWC – the ‘big four’ accountancy firm that is defending charges that it “facilitated” the alleged $2bn Baugur fraud – to investigate CJS. PWC’s review, completed in May 2007, confirmed that CJS was insolvent and recommended administration. PWC administrators David Chubb and Michael Jervis, who are not believed to have found anything untoward with the business, decided against auctioning CJS’s assets – which included several airplanes and part shares in luxury yachts Powder Monkey and Invictus – on the open market. Instead, they put CJS into administration on September 26, 2007 selling the business to Quest Aviation Services the same day.
In a report to creditors, Chubb and Jervis said they did this since the company “insufficient funds to support the trading subsidiaries for a prolonged marketing campaign, which would also have been detrimental to customer confidence in the chartered and regional airline businesses of Club and Euromanx.”
Quest was an off-the-shelf company created by the very same directors who had driven CJS into the ground and who had caused it to collapse under the weight of unserviceable debts – Mills, Southwell, Shakesby and Dave Jackson (who previously ran a CJS subsidiary). Using it, they were able to snap up CJS’s assets for virtually nothing, and virtually debt free. Each of the directors owned a 25% stake in Quest. Within days of the administration, Jervis and Chubb allowed payments totalling £29 million to be made by CJS. The payments, made between September 27 and October 10, 2007, went to JETS, Euromanx and PWC.
Despite its failure to stump up the €10 million that was needed to secure ownership of CJS’s German subsidiary, 328 Support Services GmBH, based at the former Dornier aircraft factory at Oberpfaffenhofen in Bavaria, Quest continues to run the company on a day-to-day basis. Asked whether PWC and Lloyds had exempted Quest from making the required payment, Quest chief executive Dave Jackson said: “Terms of consideration continue to be implemented.” In a statement PwC said: “The transaction was completed, and deferred consideration is still being received.”
Southwell said that, at the time of CJS’s 2007 demise, “I would have been happy to have fallen on my sword but I was asked to stay on in order to provide some continuity. The easy way out would have been to write it [CJS] off but instead PwC and the bank chose to grind it through to the next level, and drive it forward in the anticipation of getting some of its money back.”
Mills, Southwell and Shakesby built Corporate Jet Services into a debt-laden aviation mini-conglomerate on the back of deals funded by remarkably generous loans from HBOS, whose corporate lending arm was run by Peter Cummings. In 2002-07, CJS acquired several smaller aviation businesses including Club 328 (formerly Bookajet, a provider of private jets to celebrities including footballer David Beckham) and the Isle of Man-based scheduled carrier Euromanx.
The private jets business was loss-making throughout its five-year life, making estimated losses of £21 million in the year to December 2006. By the time of its collapse, the Southampton-based aviation group owed HBOS a reported £113 million. Within that was an overdraft of more than £60 million, despite an official facility of only £800,000.
At the time of its collapse, CJS’s main subsidiaries were Club 328, which provided private jets for celebrities, the maintenance group Jet Engineering Technical Support (Jets), Isle of Man-based carrier Euromanx, and some of the German assets of Avcraft Aerospace.
After the CJS administration, Isle of Man-based Euromanx was allowed to limp along for seven months with the support of the Manx government. It collapsed in May 2008, with the loss of 70 jobs and leaving some 40,000 passengers who had made bookings stranded and out-of-pocket. The Isle of Man government lost £1.5m as a consequence of the Ronaldsway-based airline’s demise.
Details surrounding the CJS administration are expected to come to light as a consequence of the compulsory liquidation of the business, which was approved in the High Court on November 25, 2009. The petition for the winding up of CJS came from one of its unsecured creditor, Guernsey-based Corporate Aircraft Leasing Ltd (Call), half-owned by HBOS and half-owned by Channel Islands-based Exxtor Aviation Group. Call is owed £324,000 by CJS in unpaid leasing fees.
Lloyds insiders said that Truett Tate, who last year earned £1.8m as Lloyds’ head of wholesale banking, is “hopping mad” that, even though it is half-owned by Lloyds, Call was allowed to push for and secure the liquidation of CJS. One insider said: “Heads are going to roll [inside Lloyds] because of this. The big bosses are demanding to know how this was allowed to happen.”
Elliot Green, of Slough-based accountants and solicitors Oury Clark, was appointed as CJS’s liquidator on March 1. A forensic liquidator, he has been described as a “bulldog” who leaves no stone unturned in pursuit of creditors’ cash. With a track record of using litigation to ensure that creditors retrieve their cash, Green is understood to be poring over the PWC-handled administration of CJS in order to establish whether CJS creditors were defrauded.
Green would not comment on the specific casem but commenting generally about compulsory liquidations on LinkedIn, he said:
“When defrauded by serial debtors who have engaged in transactions to defeat creditors, I will engage the transactional avoidance provisions in the insolvency legislation to return money to creditors.”
The CJS liquidation is expected to shed light on wider irregularities within HBOS’s corporate lending department, which are currently being investigated by an enforcement team from the FSA, Thames Valley Police and the Serious Organised Crime Agency. The authorities are eager to establish why the bank forced some 50-200 corporate customers to use the services of David Mill’s self-styled turnaround consultancy, Quayside Corporate Services.
It may also help explain the string of suspicious multi-million pound payments made through CJS’s corporate bank account in the years prior to its collapse. These have prompted observers to speculate CJS was being used as ‘a vehicle for money-laundering’ or even a ‘slush fund for top bank executives’.
An FSA spokesman declined to comment. A spokesman for Lloyds Banking Group said: “We cannot comment on individual circumstances.”
- An edited version of this article was published in The Sunday Times on June 27th, 2010
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