Liquidators settle but the gravy train rolls on

Microsoft ruling; Michael Page
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Ah, what a splendidly lucrative racket this liquidation business really is. Much to the horror of the legal profession, the Barings liquidators, Ernst & Young, yesterday settled out of court with one of the firms of auditors involved in the collapse, Coopers & Lybrand. We don't yet know the size of the settlement, but it was probably not much less than the £100m the case was expected to cost in legal and other expenses had it gone the course.

If Coopers was going to spend that sort of money anyway, it probably seemed sensible to settle, guilty or not, for the avoidance of months and possibly years of licentious court proceedings alone. Still, no matter. There's no settlement yet with Deloitte & Touche, the other auditor involved, so in three weeks time, the legal circus should be back in court with the meter running.

One of the curiosities of liquidation in big-high profile cases like Barings is that it involves essentially the same small clique of accounting firms repeatedly suing each other. This time it's Ernst & Young suing Coopers and Deloittes, but only a few years ago it was Deloittes suing Ernst & Young over BCCI.

Since culpable directors, rogue traders, dead tycoons or whatever rarely have a cent by the time the ship goes down, creditors have to pursue those in a position to pay up, and invariably that will include the auditors. In order to cover themselves against allegations of negligence, they in turn pay a king's ransom in professional indemnity insurance, which is then charged on to clients.

In the end, it is the insurers who decide whether to settle or fight, and generally they settle and up the cost of the indemnity insurance to compensate. It doesn't always work so pleasingly, of course. In the Maxwell case, Buchler Phillips famously spent more attempting to recover Maxwell's private assets than was ever found to defray the costs. But whatever the outcome, the accountants and the lawyers make hay and it's charged to the clients.

Like BCCI, Barings offers the possibility of an even bigger pot of gold than even the auditors can deliver – the British taxpayer. Liquidators are still mulling whether to sue the Bank of England for its role as Barings supervisor, though the Bank is so hemmed around with legal immunities that this is a virtually impossible task. Still, they are trying it with BCCI even though the chances of success look to be about zero. So it's a fair bet they will try it with Barings too.

If this was a case brought on behalf of poor impoverished depositors still desperately trying to cobble together enough money to pay the gas bill, then good luck to them. But actually the only Barings creditors of any significance left are the bondholders, and most of the original bondholders long ago took the pain and sold out. Today's "creditors" are largely American vulture capital funds looking for a fast buck. What a topsy-turvy world we live in.

Microsoft ruling

As legal marathons go, they don't come much longer than the US Justice Department's case against Microsoft. On and on it has gone, with an aggrieved Microsoft fighting the Justice Department every inch of the way. "Why should Microsoft be penalised for its own success", has been Bill Gates' oft-repeated lament and now, perhaps, he's starting to get heard.

With the election of Dubya as President came a general thawing in the Administration's attitude to big business, and now the courts seem to be going Microsoft's way as well. The Court of Appeals found yesterday that although Microsoft had engaged in illegal conduct, the presiding judge, Thomas Penfield Jackson, was "tainted", and that the proposed remedies – an effective break-up of Microsoft, separating its operating systems business from applications – were possibly too harsh. The judges also questioned whether these remedies would promote competition.

And so back the whole case goes for effective retrial by a different judge in the lower court. This is where Dubya comes in, for although he presumably has no influence in the courts, his writ must mean something with the Justice Department. Technically it doesn't, of course, but nobody quite believes that, and if the change in climate for big business means anything, then Microsoft can expect a smoother ride.

America has a glorious tradition of trust-busting, and its repeated break-ups of powerful business monopolies have never done its economy any harm at all. Indeed, it's reasonable to believe that the pursuit of a robust competition policy has done a power of good. What made Microsoft such a fascinating case is that its monopoly is born out of its own innovation and hard work.

In a new industry like personal computers, there's very little that can be done if the market chooses en masse to use one particular system over all others for the convenience of conformity. In most technologies, one standard eventually becomes dominant, and Mr Gates' genius and luck has been to establish that standard for PCs.

That he has used this monopoly unfairly to promote his own applications to the detriment of others is the underlying bone of contention. The appeal judges seemed to agree that he had, but they doubted that a break-up was the answer. They might be right. Since the case began, the computer software market has changed dramatically. Despite all its money and power, Microsoft is falling behind on a wide range of software development, where the only barrier to entry is the ability to innovate. As a monopoly player, Microsoft is paradoxically finding it increasing difficult to stay in front.

The time for forcible break-up of Microsoft might already have passed. Microsoft will no doubt remain a big and powerful company for many years to come, but the irony is that it might have defended itself better from those that would claim its crown by doing the break-up itself, so better to respond to the competition. The parallel is with IBM, which spent years fighting off the trust busters, only to discover when finally it succeeded that the world had moved on and the company was dying.

Michael Page

Few stock market falls from grace are as predictable as that of Michael Page International, the recruitment group. When it IPOed last March, the sponsors were forced to cut the price, so incredible did investors find the idea of floating a recruitment business into an economic downturn. Eventually they were convinced that the vendors were so desperate to sell that they must be getting a bargain.

They shouldn't have listened. Yesterday the shares slumped 20 per cent back through the IPO price after the group reported a slowing of revenue growth because of a declining recruitment demand across "the majority of business sectors". Well, there's a thing.

j.warner@independent.co.uk

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