The Farepak Debacle V

Regular readers may well recall that I have written several articles (some years ago) about the collapse of the Christmas savings company Farepak.

To add insult to injury of those who were robbed of their savings by its collapse, it now transpires that the cost of administering Farepak now stands at £8.2M in fees paid to BDO the administrator, lawyers and various others.

As for the 120,000 people who lost money (an average of £400 per person) the most they can expect to receive in compensation is £5.5M, most are still waiting, which equates to roughly £45 per head!

It is sad and ironic to see accountants and lawyers doing better than those who can least afford to lose money.

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The Farepak Debacle IV

Those of you with long memories may recall that I wrote several articles about the demise of Farepak (the Christmas hamper business) in 2006.

The wheels of justice in Britain grind slowly and, over fours years later, moves are afoot in the High Court by the Insolvency Service to disqualify the 9 directors of Farepak and its parent from holding a directorship again.

The ex directors intend to fight this action against them.

Farepak had more than 100,000 who (unusually for many British people) actually tried to plan ahead for their Christmas, and put some money away to cover the cost. When Farepak collapsed they lost on their money (on average £400 each).

The Insolvency Service said "the conduct of each director in relation to the relevant company or companies makes him or her unfit to be a director".

Farepak was not regulated by the Financial Services Authority at the time, it was quite outrageous that it acted as a saving bank yet was outwith the control of the FSA!

Its victims received only about 17.5p in the pound from a government-backed response fund set up after the company's collapse.

Last year they heard they would receive a further 15p in the pound after Farepak's joint liquidators, BDO Stoy Hayward, announced that an action against the directors of Farepak had been settled for £4M, with no admission of liability by the directors.

Post Farepak the government finally took action and announced that payments to Christmas Hamper schemes would be ring-fenced, so that savers will be protected from suffering the same fate as the victims of the Farepak collapse.

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Spend Spend Spend

Proving once again that they are immune to all forms of financial shocks, financial reality and the credit crunch; the British consumer intends to have a jolly good Christmas, and spend themselves out of recession.

That at least is the conclusion of a survey conducted by Deloitte.

In its annual Christmas retail survey, Deloitte found that the average person plans to spend a total of £706 on this year's festivities, up from £662 last year.

However, there is a caveat, the initial survey was carried out in September before the credit crunch started to bite. That being said, the question was reasked in November and the answer given was more or less the same.

Richard Lloyd-Owen, head of consumer business at Deloitte, said:

"Early indicators suggest concerns about bruised financial markets and consumer confidence are nothing more than concerns.

The impact of the credit squeeze could play out in coming weeks when events have had time to percolate through consumer mindsets, but we think it's unlikely."

The largest portion of the increase in consumer's planned expenditure is on socialising, with the average spend expected to be £143 up 18% £121.

Quite whether people will be feeling so happy with their expenditure in January, when credit will be hard to come by, is another matter.

However, Christmas is for wants not needs.

That's the real meaning of Christmas!

The British consumer may just save the economy, let us see.

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The End of Free Banking

The Office of Fair Trading (OFT) last week announced that it would launch a full-scale investigation into unfair bank charges on current accounts.

The OFT inquiry will be completed by Christmas, and will examine whether the "provision of so-called free banking" is explained clearly to customers. The OFT will also continue to study the fairness of unauthorised overdraft fees.

OFT chief executive, John Fingleton, said:

"This market study will enable the OFT to consider wider questions about transparency and value in the provision of personal current accounts. This will provide the necessary context for assessing the fairness of unauthorised overdraft and returned-item charges before we apply the law in this area."

Needless to say the banks have been quick to issue a counter threat, by warining that any regulatory restriction on unauthorised borrowing charges might force them to end free banking to their customers who stay in credit.

As noted many times before on this site, banks are not charities they will make money one way or another.

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Hamper Schemes Ring-Fenced

Following on from the collapse of Farepak, the Christmas hamper company, last year the government has finally got its act together.

It has been announced that payments to Christmas Hamper schemes will be ring-fenced, so that savers will be protected from suffering the same fate as the victims of the Farepak collapse.

Consumer minister, Ian McCartney, said that payments to similar schemes should now be placed in separate accounts, run by independent trustees on behalf of the customers.

The money would only be released to pay for the customers' orders for Christmas hampers and vouchers, not for other business activities.

This of course, in any well run business, should have been happening already.

Quote:

"The companies are now working to introduce these accounts over the coming weeks.

We think that effective safeguards of this type will provide the reassurance consumers are looking for in this industry".

This action was in response to one of the recommendations of a review into Christmas hamper savings schemes collapse by Brian Pomeroy, chairman of the Financial Inclusion Taskforce.

Pomeroy has also called for more to be done to offer consumers better choice within the market, and to educate people about the best options available to them.

Quote:

"This is a market which has operated for many years and provides as many as 700,000 families with a useful way of saving.

However it is vital that more is done to protect its customers and ensure genuine choice for those who want to save for Christmas."

The government's response, whilst being welcome, is somewhat late in the day for the victims of Farepak.

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Famine Follows Feast

The old adage of "famine follows feast" still rings true, even in the 21st century.

The post Christmas hangover of overspending is about to be felt by 30,000 people, who are likely to declare themselves bankrupt in the first quarter of 2007.

That at least is the view of Grant Thornton, which predicted a third of such cases would be a result of excessive spending in the festive season.

Mike Gerrard, head of personal insolvency service, said:

"Last year, during the period straight after Christmas, when bills started to hit the doormat, we witnessed the highest ever number of people going into personal insolvency and this year things could be even worse.

Since last Christmas, several developments such as interest rate rises, sky-high utility bills and increasing unemployment have pushed more people into financial trouble."

The figure of 30,000 insolvencies for the first quarter of this year is almost 9% higher than the third quarter total of 2006, and 25% higher than the insolvencies recorded during the first quarter of 2006.

A spokeswoman for Citizens Advice said:

"We do see evidence of a Christmas debt hangover, and this month we expect to exceed the 140,000 debt problems that Citizens Advice bureaux dealt with in January 2006."

Happy New Year!

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The Farepak Debacle III

The Farepak debacle is a story that simply won't go away, especially in the run up to Christmas.

The rival Christmas savings specialist Park Group Plc, which now that Farepak has collapsed is the UK's largest Christmas savings club, is claiming that they could have saved Farepak from collapse.

Managing Director, Chris Houghton, is quoted as saying:

"We made four (approaches) in 18 months. All at different times with different prices. We felt we'd made full offers for the business, and for some reason they did not want to take it."

Adding:

"We were bending over backwards to try to avoid the situation we've got now, but it ended up going into administration before we were able to get it done."

However, this claim is disputed; a spokesman for HBOS, bankers to Farepak's parent company European Home Retail (EHR) Plc, are claiming that EHR received no serious offers for the business.

Quote:

"The truth is that no realistic, viable deal was ever tabled.

If it had, EHR is a listed company it would have to be a matter of public record."

All very well, but none of this helps the victims of Farepak's collapse.

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The Farepak Debacle II

A very small measure of good news has been delivered to the hapless victims of the Farepak collapse. Roy Martin QC, one of Scotland's leading lawyers, is to represent Farepak victims for free in their fight to recover their money.

Roy Martin QC is dean of the Faculty of Advocates, and has agreed to waive his £5K per day fee to take up the case of the Farepak victims.

He will meet with campaigner Louise McDade, of the Farepak Victims Committee, to see if Farepak's victims have any grounds for legal action.

Mr Martin will examine the case on behalf of the 150,000 victims across the UK who lost £45M when Farepak's parent company, European Home Retail, went bust in October.

In other news The Office of Fair Trading and the Financial Services Authority are considering whether to introduce new regulations for the industry after the Farepak collapse, I would venture to suggest that this seems to be a tad late for the Farepak victims.

Meanwhile Park Group, the largest Christmas savings club in the UK, has unveiled measures to ring-fence £210M of savers' cash; in an attempt to maintain confidence following the collapse of Farepak (which was in fact a larger company).

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The Farepak Debacle

The hapless victims of the Farepak collapse have had their hopes dashed of a pre Christmas settlement of the monies owed to them. Mr Justice Mann, a High Court judge, said yesterday that there were too many issues that were not fully resolved for him to be able to agree to a distribution of about £1M.

The £1M being the figure suggested by the administrators of the collapsed saving club company.

Mr Justice Mann said:

"It will doubtless seem to some that the points which currently seem to stand in the way . . . are technical and unmeritorious... They are real points, I fear, and they arise out of the way that this company conducted its business. They must be disposed of properly and on the basis of law, not purely on the basis of sympathy and Christmas."

The contentious point is the fact that money was paid into Farepak, between October 11 and October 13. The directors had internally decided to cease trading on 11 October. However, the company was not formally put into administration until October 13.

To add to the complexity of the case is the fact that people paid monies to around 26,000 agents, who would in turn would pass the money to the company at a later date.

Overall it is estimated that Farepak customers, many of whom are low income families, have lost around £40M.

In other Farepak news, PricewaterhouseCoopers have decided to go ahead with creditors' meetings for EHR (the parent company of Farepak) despite concerns that they will be swamped by Farepak customers.

PwC's meetings are not expected before Christmas.

As if to add to the misery of the Farepak customers, it is also reported that loan sharks are now targeting them; offering them financially suicidal loans.

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