The former directors of Northern Rock have been gagged, preventing them talking to former shareholders of the bank preparing a legal case against the terms of nationalisation.
Lawyers from White & Case acting for SRM Global Masterfund, one of the two hedge funds challenging nationalisation, wrote to 17 former executive and non-executive directors of Northern Rock. The letter said that the former directors could have valuable information about the near-collapse and nationalisation of the bank and requested meetings to prepare statements that could be presented to the court.
The directors included Adam Applegarth and Matt Ridley, who were chief executive and chairman when the bank received emergency funding from the Bank of England in September. Also included were Sir Ian Gibson, the bank's former senior independent director, and Sir Derek Wanless, who headed the audit and risk committees.
Lawyers from Denton Wilde Sapte, representing 14 of the former directors, replied saying SRM's request would necessarily involve confidential matters related to Northern Rock. SRM's lawyers made it clear that they were not seeking confidential information about the operation of Northern Rock.
Sources close to the case say that SRM wants instead to hear an account of the affair from directors of the company at the relevant time, including what happened during the failed private-sector bidding process. Some of the former directors, whose reputations have been damaged by their association with the Northern Rock debacle, may welcome the chance to put their side of the story.
Freshfields, Northern Rock's lawyers, wrote to White & Case to say that the company was not prepared to waive the directors' duties of confidentiality.
The Government's terms will be examined by the High Court in a judicial review in a week-long hearing starting on 12 January. The case is being brought by SRM, RAB Capital and the UK Shareholders Association, which represents small investors. Legal & General, the biggest investor in the FTSE 100, is supporting the action as an interested party.
The former shareholders argue that the stance of the Government, now the sole shareholder in Northern Rock, denies the claimants, the court and the public important information about what went on at Northern Rock. The only remaining director from before nationalisation, Andy Kuipers, will leave at the end of this month to make way for Gary Hoffman, the new chief executive, who will arrive from Barclays.
Mr Kuipers' departure also means that, when appointed, the Treasury's independent valuer will not be able to talk to any directors of the bank from pre-nationalisation. The Government has limited the valuer's access to existing directors.
The role of the valuer is a bone of contention between the former shareholders and the Government, which has stipulated that the valuer must assume that Northern Rock had received no support from the Bank of England. The ex-shareholders claim that this restriction rigs the process so that the value will inevitably be little or nothing.
The job of valuer was seen as undesirable by many of the big accountancy firms and investment banks because of conflicts of interest and potential for litigation and reputational damage from such a high-profile case.
The Treasury has put the job out to tender and hopes to announce a valuer by early next month. The field is said to have been whittled down to three contenders, with Houlihan Lokey, an American investment bank, as the front runner.
SRM was Northern Rock's biggest shareholder, buying in after the bank's shares slumped when the Bank of England's support was announced. SRM has claimed that the real value of Northern Rock's shares was 425p.
Calls to the Treasury and Northern Rock were not returned yesterday.Reuse content