BZW faces threat of pounds 500m writ on B&C purchase: Administrators weighing more legal action

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The Independent Online
ERNST & YOUNG, the administrators of British & Commonwealth Holdings, the finance group which collapsed in 1990, plans to issue a pounds 500m writ against Barclays de Zoete Wedd, the merchant banking arm of Barclays.

The legal action, which would be the largest ever undertaken against a British merchant bank, is expected to allege negligence in the due diligence procedures which BZW undertook when it advised B&C on the takeover of Atlantic Computers in August 1988.

The computer leasing group cost B&C pounds 416m, but shortly after it was purchased, it emerged that there were massive problems with contingent liabilities and inflated stock valuations emerged shortly after it was purchased. B&C was forced to close the operation and write off pounds 550m, a decision that led to B&C's collapse a few weeks later.

The writ would come hot on the heels of the pounds 172m award made against Samuel Montagu in the action B&C took against the merchant bank in connection with the unsuccessful attempt to sell two money brokers to Quadrex Holdings, the US group, in 1987. Montagu is appealing the decision but paid the pounds 172m into court last Tuesday.

That award was worth up to 16p in the pound for creditors of B&C, which collapsed with debts of over pounds 1.1bn. If the action aganist BZW is successful, it could bring the realisations from the B&C administration to more than pounds 1bn, making it the most successful administration since the procedure was introduced in the mid-1980s.

The Ernst & Young team, led by Stephen Adamson and Nigel Hamilton, who recently masterminded the restructuring of Canary Wharf, has been discussing the prospects for the legal action with its solicitors, Stephenson Harwood, and leading counsel.

A spokesman said no final decision had been made, but a source close to the administration said: 'They would not have gone this far if they weren't planning to go the whole way.'

BZW is expected to fight the action vigorously, arguing that as Atlantic was a public company, it only had access to publicly available information - none of which could have indicated the extent of the company's problems. Most of the team that worked on the deal have also left the bank. John Padovan, the head of corporate finance, has retired; Richard Heley, the director in charge of the deal, is now at Hill Samuel; and Mike Peacock, the assistant director, has gone into industry.

Ernst & Young has been looking into the possibility of suing BZW since it was appointed administrator. It received a full report on the Atlantic takeover from Stephenson Harwood but has been holding back, because it expected the Department of Trade & Industry inspectors, appointed three years ago to investigate the circumstances of Atlantic's collapse, to publish their findings. However, the report has yet to come out. Informed sources say they believe it is finished, and none of the parties originally interviewed by the inspectors have been contacted at any time in the last few months.

The inspectors even went as far as sending out draft sections of the report to people mentioned in it - the usual procedure that precedes publication. However, no further contact has been made.

Ernst & Young may also look at issuing other writs against parties connected with Atlantic, but is stymied by the legal precedent set up in Caparo Industries v Dickman, which says that an auditor cannot be sued by someone who was not a shareholder in the company in the period when the auditor was reporting.

Montagu fine, page 7

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