Gavin Masterton and the riddle of Charlotte 18

September 17th, 2013 (updated with minor edits September 24th, 2013)

Gavin Masteron Photo: The Scottish Sun

Gavin Masteron
Photo: The Scottish Sun

Charlotte Eighteen, a shadowy company based in the tax secrecy jurisdiction of the British Virgin Islands, remains the subject of intense interest among Scottish football fans. Allegedly the holding company for the business assets of Gavin Masterton, the former treasurer and managing director of the Bank of Scotland, it looks like it could be the crux to an extraordinary financial scandal at the heart of Scottish football.

As part of a tangled web of troubled and failed business ventures, Charlotte Eighteen appears to be one of several holding companies which sat above Masterton’s now largely crumbled post-Bank of Scotland business empire. Others are Charlestown Holdings Limited and East End Park Limited.

Andrew Picken, former Scottish Political Editor of the Mail on Sunday, published a string of articles in February and March this year at a time when one of Masterton’s assets, Dunfermline Athletic Football Club, was on the verge of bankruptcy. In these, Picken highlighted Masterton’s financial difficulties and examined some of his labarynthine business arrangements. Picken revealed that the state-rescued RBS had lost patience with the former BoS director and was calling in a £600,000 loan; and that Masterton’s old employers BoS had lent him scores of millions of pounds on terms so lax they were virtually a gift. In a 3 March piece in the Mail on Sunday, Picken wrote:

Bank of Scotland wrote off a £4 million loan to a company owned by Mr Masterton – then sanctioned the £12 million loan to another of his companies that allowed it to skip repayments for the next 35 years.

There’s a distinctly bad smell about this. Why for example, was the Bank of Scotland, now one of several brand names belonging to Lloyds Banking Group, prepared to lend such huge sums and on such lax terms to its own former treasurer and managing director? Were any other borrowers allowed to borrow  on these terms? How many of these loans were issued prior to Masterton’s retirement? Which executives inside the bank were responsible for signing off the loans?

largeWe also need to know whether the loans extended to Masterton — who retired from the Bank of Scotland just after its merger with Halifax in June 2001 — were among the loans advanced without proper paperwork, due diligence or credit checking by the infamous former BoS Corporate managing director Ian Robertson, who quit the bank in June 2007 but died in August 2010. According to former Bank of Scotland Corporate insiders, Robertson’s empire was so dodgy — as a result of the poor quality of the lending within it, and the fact that he effectively ran it as a “bank within a bank”, without proper risk management, compliance, supervision, or boardroom oversight — that no-one else at BoS Corporate wanted to have anything to do with it after Robertson quit. One ex insider said: “people would run a mile rather than having anything to do with Robbo’s Bank”.

There are also questions surrounding the way in which HBOS’s Bank of Scotland Corporate unit got Kevin McCabe and Cesidio de Ciacca of Scarborough Development Group to mop up the financial carnage left by the collapse of Masterton’s BoS funded Stadia Management venture.  There are also questions over why Masterton, now aged 72, has at various stages been a director of 81 companies – some of which borrowed tens or even hundreds of millions of pounds from the Bank of Scotland, and many of which were part-owned by the bank and its cronies. Didn’t Masterton’s presence on the boards of these firms create a dangerous conflict of interest, and didn’t BoS’s status as a shareholder in these businesses distort its perspective of their creditworthiness and proclivity to lend?

There is a positive side to Masterton, or at least seems to be. He was recently credited with helping to save Dunfermline Athletic Football Club (DAFC). Masterton, who was previously a 94% shareholder in the Fife-based club through East End Park Limited, did this by abstaining from a creditors’ voluntary arrangement (CVA) vote at the time of DAFC’s bankruptcy, which meant he effectively gave up his claim for £8.5m. Instead he handed his shares to administrator Bryan Jackson of the accountants PKF.  Speaking in April, Masterton said:

“I have handed over my shareholding in DAFC in the hope that this will help the club rebuild for the future. For those of us who love this club anything which can be done to facilitate its future survival must be done. I have given my life to DAFC over the last few years and I hope that this move is one of many actions which need to be done swiftly to allow Bryan Jackson to more effectively do his job as the administrator. I appreciate that the fans will also be doing their best for the club and hope that we can all work together to ensure DAFC is still around for another 128 years.”

So back to Charlotte Eighteen. It is one of a group of similarly-named companies, ranging I believe from Charlotte One to Charlotte Thirty-Six. Contrary to what has been claimed by some in the blogosphere, the Charlotte companies have nothing to do with former Rangers owner Sir David Murray (his similarly-named private equity business, Charlotte Ventures, has different ownership). As far I can gather all the Charlottes are the — renamed — constituent parts of Bison Concrete, a company that was majority-owned the Bank of Scotland during the Eighties and Nineties.

Under Masterton, Bank of Scotland is understood to have bought the majority of the equity in Bison Concrete, a business which specialises in pre-cast concrete components for the UK construction industry and which was at the time headquartered in Iver, Buckinghamshire. The business was first acquired from the Saudi Arabian company National Concrete Industries in June 1985. There was a secondary buyout funded by Bank of Scotland in September 1988.

Photo: Henk Snoek RIBA collection

Photo: Henk Snoek
RIBA collection

[Just a little bit of background here. Bison Concrete built 79 towers blocks for the City of Glasgow between 1962 and 1983. At that time it seems to have been something of a dodgy outfit. In the early 1980s, its former chief executive admitted to destroying documents after complaints were made about serious structural faults in tower blocks it built in Pollokshaws and Woodside. Heavily-indebted, Bison doesn’t seem to have performed too well in recent years either. It went bust in October 2008. In a pre-packaged administration deal organised by the accountancy firm PwC the same day it entered administration, the business, shorn of its debt, was acquired by Laing O’Rourke.]

The law firms that advised on the £10 million Bank of Scotland-funded MBO of Bison Concrete in 1988 were Lovells in England (now known as Hogan Lovells) and W&J Burness in Scotland (now known as Burness). Most of the numbered Charlotte firms (which for the most part were the renamed Bison Concrete and its renamed trading subsidiaries), owe their origins to that buyout. Many had ‘Bison’ in their previous names and were re-registered at Lovells’ 21 Holborn Viaduct address in London, or at Burness’s 12 Hope Street, Charlotte Square, Edinburgh address (Burness later moved to 50 Lothian Road in the same city). Except for Charlotte Eighteen which, as I have said, is registered in BVI.

One curious thing about Charlotte Eighteen, is that, according to a report in the Sunday Times (Scotland) (see below), it was used as a vehicle by Masterton to take a 75 per cent stake in Stadia Management in the early 2000s. I intend to do more research into the riddle of Charlotte18  in coming weeks, and am now collaborating with an investigative reporter who is an expert on corporate abuse of tax havens and hopefully also a professional adviser-turned-whistleblower. If anyone can provide further information on Charlotte 18 — which is likely to be spelt Charlotte Eighteen in official documentation — please get in touch.

Former BoS director in row over loan for soccer shares

By Robert Ballantyne, Business Editor Scotland

Published: The Sunday Times

Date: 17 October 2004

[This article is subject to a legal complaint]

ONE of the Bank of Scotland’s most senior directors arranged a loan from the bank for an associate to buy a stake in a Scottish football club of which the banker was also a director. The shares were later acquired by a company controlled by the banker.

Documents given to the Sunday Times show that Gavin Masterton, at the time treasurer and managing director of Bank of Scotland, arranged between 1999 and 2000 for the associate to buy shares in Dunfermline Athletic with the loan. He also gave the associate a guarantee that the shares would be bought off him before the loan had to be repaid. Two years later — after Masterton had retired from the bank — the shares were sold to his company Stadia.

Masterton retired as treasurer and managing director of the Bank of Scotland in 2001. Banknotes which bear his signature remain in circulation today. Stadia, which developed property at both Dunfermline and Livingston football clubs, collapsed earlier this year with debts reported to total £25m.

Dominic Keane, the chairman of Livingston who faces personal bankruptcy as a result of the collapse, alleges that, while he was led to believe Masterton was acting for the Bank of Scotland, the banker was in fact working for Stadia. As a result, he argues, the Bank of Scotland should be jointly liable for losses incurred through his relationship with Masterton. The documents handed to The Sunday Times, on the condition that the name of Masterton’s associate remain anonymous, explain in detail how the Dunfermline deal was done.

After a discussion with the associate about buying a stake in Dunfermline, Masterton sent a letter to him, on headed notepaper from “Gavin Masterton CBE, treasurer and managing director, Bank of Scotland, The Mound, Edinburgh,” which said: “I appreciate your willingness to enter into this transaction and,I am sure that we will have a purchaser for the shares in place before the next settlement date. You have my guarantee in this regard.”

The associate then received what he claims was an unsolicited loan application in June 2000 from Bank of Scotland Corporate Banking, offering £69,250 at 1½% above base rate, with no security, no arrangement fees and with interest payments deferred until the end of the three-year loan period. The application form made it clear the facility was offered “only for an investment in DAFC”. Two years later, the final part of the arrangement was effected. A letter to the associate from solicitors for Wood Investments, a company which included Masterton as a director, said: “We will arrange with Bank of Scotland to have the loan account relating to the DAFC shares cleared using funds from Stadia.” At no point, the associate says, did he have to put up his own cash. He bought 11,273 shares, which were held in a nominee account on his behalf by Wood Investments for two years.

The loan was then cleared using funds from Stadia, which ultimately took control of the football club.

Masterton this weekend said the bank had been at all times aware of his actions. “Oh dear, there’s no end to this,” he said. “Yes, there were loan arrangements to individuals, but they weren’t preferential. I’m not going into all of this. It was all perfectly legitimate. We wanted to do it in that particular way. It was a very small amount of shares.” A spokesman for Halifax Bank of Scotland said: “There are very clear procedures within the group for managing business affairs. Those procedures have been followed.”

In another letter from Masterton to his associate, entitled “Stadia Management Ltd” and written on the same headed notepaper from his personal office, he discusses the re-alignment of shares in Stadia on the basis of a firm named Charlotte 18 holding 75%. Charlotte 18 is believed to be an offshore company in the Caribbean tax haven of the British Virgin Islands.

Registration details of the company, started in 1998 and operated by Bison Financial Services in Tortola, British Virgin Islands, have been seen by The Sunday Times. The details include no directors, but state that “there are not many money transfer restrictions” and that the agents cannot give any more details “as they are prohibited by the prevailing laws of secrecy”.

Asked about Charlotte 18, Masterton said yesterday: “It was five years ago — I don’t know. It’s not my company — has the name been changed? Charlotte is one of the lawyers’ companies, a shell company.”

Keane, a former banker, is outraged at what he sees as the bank’s attempts to disassociate itself from Masterton’s actions. The bank’s assertion has always been that Masterton made clear that he was acting for his own company.

Keane said he had regarded Masterton and the Bank of Scotland as interchangeable. “I wish I’d never met him — the bank has to accept some responsibility in this.”


The other main evidence I have is a letter sent by a a Scottish businessman to the FSA on 21 February 2005. Some names have been redacted.

Inquiry number: 20050126/RMN020333/

Dear Ms Phillips

Thank you very much indeed for your reply by email … I note your comments about the Financial Ombudsman Service but, unfortunately, this matter is not simply an isolated case of an individual grievance against a financial institution.

This complaint involves the professional actions of the former Treasurer and Managing Director of a PLC, listed on the London Stock Exchange, and the subsequent behaviour of the PLC in clearing up these alleged irregularities, which would appear to involve the hiding of substantial debt write-off and the resulting over-inflation of the asset value of the PLC’s balance sheet.

It requires a full inquiry and a public statement from the institution about whether it allows its senior executives to conduct business on their own behalf while running a PLC. This is a matter of major public interest and needs clarification from the FSA. Given the status of the individual concerned and that he carried specific nominated responsibility under the Banking Licence Regulations then I would assume that this would have merited a more detailed investigation.

…This is not a difficult inquiry for the FSA. One fundamental question needs to be raised about whether the operations of a secret bank account held in the British Virgin Islands, called Charlotte 18, was acting in the best interests of the customers and shareholders of The Bank of Scotland. Were money laundering processes and procedures clearly followed? Clearly not, given that the current office-bearers of the bank, as recently as October 2004, did not know of the existence of this company [ Charlotte Eighteen ] and the fact that it was the parent company behind some of the former Managing Director’s companies.

If you feel this is appropriate and you have been given satisfactory answers then there is no case for Mr Xxxxx. I refer you to the legal case of Woods versus Martins Bank, which is used as a touchstone for banking ethics and standards in the UK: “Any ordinarily prudent and competent bank manager, especially the bank manager of a commercial branch, should know that before advising the investment of money in the preference shares of any company, let alone in a private company, he should be able to see from the balance-sheet figures that the financial position of the company is strong enough to ensure that the investor’s capital is safe and from the trading history of the company that the interest would be paid.”

The legal ruling says that a bank manager has a “fiduciary duty” to act in the customers’ best interests. … and Mr Xxxxx claims that in “fixing” this position the parent company, HBOS, has used assets to cover up the bad debts caused by the collapse of a company run by the former Managing Director of the Bank of Scotland. Such irregularities need to be properly examined by competent and independent authorities. This is clearly outwith the jurisdiction of the Financial Ombudsman Service.

What is concerning is that the Financial Services Authority can make a judgement on this matter without viewing the proper information, especially the detailed information only held by Mr Xxxxx. So far, you have only received a brief letter stating the complaint. I’d also like to remind you that there are some serious conflicts of interests involving this case because [ HBOS chief executive ] James Crosby is a non-executive director of the FSA. He is aware of this case and has chosen not to investigate it inside HBOS. I would also advise that Mr Xxxxx also has been a victim of serious threats which have been referred to the police authorities.

I believe Mr Xxxxx at least needs to have his case heard by FSA investigators. If you then decide there is nothing further to do then at least you will have heard both sides of position.

Kind regards,

The FSA, where James Crosby had been a director since January 2004 (conveniently for the bank, he was doubling up as chief executive of HBOS from 2004-06!!), dithered for months about this complaint. When the regulator finally reached a decision later in 2005, it dismissed the complaint on the spurious grounds that it “did not police business models”. HBOS went spectacularly bust three years later, though it escaped oblivion thanks to a state-sanctioned rescue takeover by Lloyds TSB.

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Posted by on Sep 17 2013. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

2 Comments for “Gavin Masterton and the riddle of Charlotte 18”

  1. […] Gavin Masterton and the riddle of Charlotte 18 Ian Fraser’s BlogA tale of Scottish football and the British Virgin Islands. […]

  2. Ditch any references to Dominic Keane as being in any way a credible anything really and you’ve got the makings of a Channel 4 Dispatches documentary
    1) Doorstep Peter Cummings (Gavin Masterton’s protege), Hugh MacMillan and George Mitchell given they were the people who sanctioned Gavin’s “loans” and ask them what in heck they were doing with shareholder funds
    2) You ask them to reconcile what they actually sanctioned with the company’s credit polices, FSA regulations, what they said to the parliamentary enquiry on banking standards and what no
    3) You ask a senior HR person why were all of them allowed to early retire on 6 figure packages and not simply dismissed for gross misconduct
    4) You ask if the early retirements can be retrospectively reviewed in light of new evidence (dear gawd this would put the wind up them all)
    5) You hand in some kind of dossier to the FSA’s successor organisations, ideally with some cool soundtrack music playing in the background

    Just saying

    (your piece on RBS vulture financing was utter pants by the way, this on the other hand has actual legs)

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