BZW faces pounds 600m claim over B&C: Negligence alleged in advice over Atlantic Computers takeover Writ issued as deadline approaches

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The Independent Online
BZW, the investment banking arm of Barclays, is facing a damages claim of approaching pounds 600m from the administrators of British & Commonwealth over its advice on the takeover of Atlantic Computers in 1988.

The writ, issued yesterday, comes six months after B&C won pounds 172m damages for creditors from another merchant bank, Samuel Montagu. That was over a separate 1987 takeover deal, in which the purchaser, Quadrex Holdings, failed to complete.

The potential scale of the new claim led Barclays Bank to make an announcement about the writ to the Stock Exchange. The bank said it would defend the action vigorously. The writ has been issued as the six- year deadline for civil actions approaches, under the statute of limitations.

Atlantic Computers was bought for pounds 407m but provided the seeds of B&C's destruction because its heavy losses were a key factor in bringing down the parent company in 1990.

The administrators, Ernst & Young and Buhler Phillips, are claiming damages and interest for negligent misstatements, misrepresentations and advice to B&C in connection with the acquisition, which led B&C to write off pounds 550m.

The action covers oral as well as written advice and refers to an agreement made with BZW to act as merchant banker to B&C in 1986, two years before the takeover.

The writ also names a firm of business strategy consultants, Outram Cullinan, for whose advice BZW is claimed to be legally liable to B&C. It gives no figure for the claim, but the administrators are known to be seeking the return of the purchase price and interest over the six years since the deal.

A Department of Trade and Industry inspectors' report into Atlantic Computers is due this year and is likely to be ammunition for claims against those who advised on the acquisition.

The writ from the administrators comes four months after BZW itself sued Clifford Chance, the City solicitors, in a multimillion pound damages claim over alleged negligent advice to B&C's banking syndicate. Even without a win against BZW, B&C creditors have begun to retrieve substantial sums from the sale of other healthy subsidiaries of the failed financial services conglomerate.

B&C already has a pounds 60m claim against Atlantic as a creditor, but this is dwarfed by the action against BZW, which took on the advisory job when it had a much smaller profile in the City than now.

There are further disposals to come and a number of other cases in the pipeline involving B&C, inluding attempts by banks to retrieve guarantee payments and disputes over the proceeds of disposals.

Barclays shares were unchanged by the announcement, which came out late in the day. Although the writ is to be strongly contested, the success of the administrators in taking on Samuel Montagu and winning record civil damages over the quality of merchant banking advice is likely to make the City take the new action seriously. It is the latest of a series of writs against merchant banks over aspects of their advice.

The judge in the Montagu case - which is going to appeal - ruled that the bank's managing director, Ian McIntosh, had been guilty of 'negligent misstatement' in saying in August 1987 that Quadrex had the funds to buy part of Mercantile House. Mercantile was then subject to a B&C bid, but immediate disposals of parts of it were planned, including the sale to Quadrex.

The statement of claim in the action against BZW is not yet available but, given that it involves an acquisition that went through, the grounds are bound to be different from the Quadrex case.

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