Lloyd's investors or 'Names' claim that over the last six months some agencies have been 'asset-stripping' - deliberately divesting themselves of their assets - in the face of legal action by their clients. The agencies, which manage the affairs of Names at Lloyd's, are being sued for negligence by Names and would be liable to pay out millions of pounds if they lose the court battle. Names believe the agencies have deliberately reduced their assets ahead of possible defeat in court.
In a separate development, the Department of Trade and Industry is also investigating a possible criminal breach of Section 151 of the Companies Act by directors of Dawes & Henderson, a Lloyd's agency. Section 151 prevents a company financing the purchase of its own shares. David Coulthard, a director of Dawes & Henderson, refused to comment on the DTI investigation.
This is believed to be the first time the DTI has begun an investigation on these grounds at Lloyd's. The DTI says it is also investigating other firms but is refusing to disclose their names.
Agency closures have accelerated during 1994, following Names' rejection in February of a pounds 900m offer by the market's authorities and its agents to settle claims for negligence out of court. There are now only 97 active Lloyd's agencies, compared with 223 in 1990.
The Names claim some agencies have made unusually high dividend payments and incurred high management charges, or have transferred assets from defunct agencies to related companies for no, or insufficient, payment. Lloyd's regulators and firms of liquidators have also been brought in on the investigations.
Christopher Stockwell, chairman of the Lloyd's Names Association Working Party, said: 'It is disgraceful the way agencies are clearing out their funds and taking what would in some cases be the only compensation Names have any hope of receiving. This is a regulatory failure. Lloyd's has told us it will only take action if agents are found guilty of criminal offences.
'Asset-stripping by agents makes a nonsense of the 'pay now sue later' line Lloyd's has been trying to push to Names. There will be nothing to sue for later. There won't be anything left in the agencies.'
The working party has approached the market's authorities and the DTI to look into the circumstances surrounding the liquidation of the Dawes & Henderson agency. The Names claim that Dawes & Henderson passed its annual Lloyd's solvency test by showing in its accounts worthless loans of pounds 537,000 to other group companies as assets. The loans were subsequently written off.
Names have made a number of complaints to Lloyd's. They are contesting payment of dividends and management charges from the Stancomb & Kennington, London Wall and Wendover agencies.
Other transactions under critical review by the Names include:
the terms on which assets were transferred out of Christand, another Lloyd's agency;
the sale last week of Gardner Mountain & Capel Cure agency's list of Names to the Murray Lawrence members' agency. Gardner Mountain refused at the time to reveal the proceeds of the sale.
Bob Hewes, director of regulatory services at Lloyd's, said: 'We are looking into several cases, but we do not give details of who we are investigating.'Reuse content