Regan accused over offshore Co-op payments

Galileo ready to relaunch Co-operative Wholesale Society bid as both sides trade insults. Lanica accused of 'mis-information'

The Co-operative Wholesale Society yesterday accused Andrew Regan, the financier who has been stalking the movement, of "a campaign of misinformation" against its senior executives as Mr Regan's Galileo shell company insisted it would be ready to relaunch its bid "within days".

At the same time the CWS stepped up its efforts to get to the bottom of a secret pounds 2m payment by Mr Regan to a Cayman Islands company, denouncing his explanation of the payment as "wholly incredible".

Graham Melmoth, chief executive of CWS, has written to Mr Regan's merchant bank adviser, Lord Hambro, expressing dismay that the bank could associate itself with Mr Regan's break-up bid and posing serious questions about the payment.

The letter challenges Lord Hambro to explain "a significant payment that was made by Hobson [Mr Regan's former company] to a Cayman Islands company, Trellis International". It invites him to investigate the matter "for evidence of fraud against the CWS".

A spokesman for Mr Regan insisted yesterday there was "nothing suspicious about the payment" which was made to a British-based businessman, Ronald Zimet, for his help in negotiating the extension of a contract with CWS.

"Mr Zimet doesn't live in the Cayman Islands," the spokesman explained, "but he is a man who likes to structure his affairs in a tax-efficient manner."

Mr Melmoth's letter had not shaken Hambro's commitment to or confidence in Mr Regan "one jot" and Lord Hambro would reply to the CWS letter this week.

In it Mr Melmoth explains how when Mr Regan bought the CWS's food manufacturing interests in 1994, the CWS entered a three-year agreement to purchase products made by the businesses. Soon afterwards the supply agreement "was extended for a further two and a half years, thereby considerably increasing the value of Hobson's business".

CWS received a payment of pounds 2.85m for the extension, which was negotiated on behalf of the CWS by Allan Green and David Chambers.

These two executives were suspended by the CWS last week after Mr Green was caught on video secretly meeting with Mr Regan in a hotel car park in Beaconsfield, Buckinghamshire.

According to Mr Melmoth, the relatively low level of the pounds 2.85m payment and the timing of the extension, coming so early in the agreement's life, caused concern among Mr Green's colleagues at the time.

"It has subsequently come to our attention that a significant payment was made by Hobson to a Cayman Islands company, Trellis International, purporting to be for services rendered in connection with the negotiation of the extension."

Mr Melmoth insists that CWS's files contain no reference whatsoever to any involvement of Trellis or of any other intermediary in the negotiations for the extension.

Supporters of Mr Regan last night questioned how the CWS came by its knowledge of the Trellis payment, which they said was privileged and confidential information.

However, they added that Swiss Bank Corporation and KPMG, now acting for the CWS, would have access to such information since at the time of the extension they were acting for Mr Regan.

"There must be some suspicion of breach of confidence," a Lanica spokesman said. "Both KPMG and SBC approved all aspects of the deal, as did CWS's chief executive at the time, David Skinner."

According to Galileo, Mr Zimet was a key man in the negotiations, some of which took place in SBC's offices.

Mr Zimet approached Mr Regan and said that he could renegotiate the contract for pounds 5m. Mr Regan agreed that if he could do it for less, then he should keep the difference. "CWS was very happy with the deal at the time. If they now feel they sold for too little, then that is their look-out. They were plainly badly advised at the time," the Lanica spokesman said.

But the CWS stuck to its line. "We would not have sent that letter unless we were sure of our information. The question remains the same.

"Why on earth is it necessary to go to a middle man in the Cayman Islands to negotiate the extension of a contract? It is totally unbelievable," a spokesman said.

The CWS was alerted to the possibility of "treachery" among its executives when Mr Chambers submitted his February expenses. These included the costs of a weekend stay at Durrants Hotel in London. The invoice stated the reservation had been made by Lanica, Mr Regan's quoted company.

The CWS dismissed claims from the Regan camp that Lanica had been speaking with a large number of CWS executives, all of whom were supportive of his plans. "Mr Melmoth has never met the man and as for Alan Prescott, chairman of the Co-op Bank, he has met Mr Regan only once on an unrelated business matter," a spokesman said.

Galileo, the vehicle through which Mr Regan is planning to launch his assault, was this weekend redrawing its bid documents to comply with a court order won by CWS.

The High Court last Friday banned Galileo from using any confidential information about the CWS obtained from Mr Green or by other methods.

As disclosed in The Independent on Saturday, Allied Irish Banks has been lined up by Mr Regan to buy the Co-op Bank in the event of a successful bid for the CWS.