COMMENT : `Rescue culture' in need of a new lifeboat

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The Independent Online
Most people - reasonably in some respects - think of the insolvency profession as a disreputable one, high earning corporate leeches feeding off the corpses of British industry. A lot of the time, however, the perpetual bad press is undeserved; the administrators who rescued Barings and sold it on, saving all depositors' money and much of the City's reputation with it, all within 10 days, deserve some credit for a job well done.

The Law Lords seemed to have the former view in mind when they dropped yesterday's bombshell. Their ruling in the Paramount case (nothing to do with Hollywood) opens the way for an estimated £2bn in claims from employees sacked by receivers in cases going back to 1986.

When the Paramount problem first appeared last spring, a rare consensus sprang up between the Government, Labour, management and unions, that emergency legislation was needed to overcome what was seen as a clear anomaly in the law. To his credit, Michael Heseltine, President of the Board of Trade, put together a Bill and passed it within weeks of the problem emerging.

But he rejected pleas from the insolvency profession to make his Bill retrospective. This meant that although receivers could continue in their work, after March 1994, without having to sack entire workforces within the legislation's two-week cut off period, they would still face claims for compensation dating back to 1986, when the last Insolvency Act was passed.

In a nutshell, the Paramount ruling means that receivers have to sack anyone within a company in receivership in the first two weeks, or risk taking on all their claims for compensation, pension rights and everything else. The possibility of this quirk in the legislation had been noticed when the Act was going through Parliament but a test case in 1987 had suggested that receivers could simply write to employees stating what new terms they were being employed under, until the bust company was either sold on or liquidated.

The test case was successfully challenged last year by employees of Paramount Airways, an obscure aviation company that went into administration in1989. The ruling opened a Pandora's Box of potential claims against Britain's company rescuers. Former employees were not slow to spot this.

A number of former directors of Olympia & York, the Reichmann Brothers company that built Canary Wharf in London's Docklands, lodged a claim totalling over £10m against O&Y's administrators Ernst & Young.

More worryingly, claims can be registered personally against receivers. All receivers are personally appointed, and therefore personally face much of the retrospective claim.As the CBI warned last year, the potential for claims is enough to bankrupt some of the top six accountancy firms. Employees sacked before last May's Bill was passed must be licking their lips.

The implications range from the sublime to the ridiculous. In theory the partners of Ernst & Young would not be able to act as administrators for Barings for with the threat of hundreds of millions of pounds of claims hanging over them they would hardly stand up in court and agree they were fit and proper to be insolvency practictioners. More absurd still, the most likely beneficiaries are those with the money and know- how to pursue the claim - in other words, the directors and executives responsible for the insolvency in the first place.

Much depends on whether professional indemnity insurance extends to covering these claims. The picture here is unclear, and will require further court cases to clarify it. The aim of Parliament in passing the 1986 Act was to foster a "rescue culture" for troubled British companies, not bankrupt the very company rescuers who would carry this out.

The Law Lords' decision may be a correct reading of the Act. In its practical effects, however, the ruling is stark staring mad. Now is the time for some common sense. Mr Heseltine should complete the job he started so well last spring, and make his emergency Bill retrospective. Otherwise it is adios for the insolvency experts who saved Canary Wharf, Barings, Leyland Daf and thousands of others.

No win for Sir Richard

A personal tragedy is slowly unfolding for Sir Richard Greenbury, chairman of Marks & Spencer and of the executive pay committee that bears his name. As he may well have discovered on his business promotion trip to Israel with the Prime Minister, it is increasingly obvious that he cannot win on the pay issue.

The committee is working hard and by City and corporate standards, it is likely to come up with some quite radical proposals; full disclosure of directors' pay, a clampdown on rewards for failure through excessively generous contracts and a requirement to link share options and bonuses to properly thought out performance measures.

There may, just possibly, be a proposal for legislation to back increased disclosure, and the committee will probably try to tart up the image of remuneration committees, perhaps by urging an annual report from the chairman or even his election by shareholders. All this may be taken up by the Stock Exchange and incorporated in its listing rules.

But it is clear from what has seeped out so far that the committee is sticking rigidly to a brief of setting out best practice; its objective is to publish a benchmark for others to use. By definition, that means it is working within the framework set by the best-run companies and investing institutions.

The final document will be no surprise, for example, to Reuters, which has one of the most advanced performance-related share schemes, even if some less scrupulous companies find it hard to swallow the new rulebook whole.

But political and general public expectations have risen way beyond this kind of result. To satisfy them, Sir Richard would have to tear up the work his committee is doing and produce a humdinger of a report slamming greedy bosses, tearing into the utilities and banning boardroom excess, whatever that means. Forced to choose between political and business demands, it is a sure bet Sir Richard will opt for the approval of his business peers, not backbenchers and newspapers, and that he will produce a working document containing nothing startlingly new.

You can already hear the accusations of whitewash and bosses looking after their own kind. That, of course, is the risk of volunteering your services to get politicians off a hook. Sir Richard is going to end up on the sharp end of it, and deeply fed up about it he is too.