Exclusive: The Cameron crony, the private jet company, and a crash landing that cost taxpayers £100m
Robin Southwell is one of the PM's most trusted business leaders. But there is one blot on his career. Corporate Jet Services, a company that lays on planes for the rich and famous, collapsed in 2007 – costing its main creditor, HBOS, about £100m (and helping to bring about the bank's state bailout, at vast expense to the taxpayer). Tom Harper asks what was HBOS doing lending so much money to such a small firm. And how is it that Mr Southwell and other directors of the firm ended up buying back CJS for a knock-down price?
Take a look at pictures of David Cameron on one of his many globetrotting trips to boost British trade, and there's a good chance you'll see Robin Southwell at his side. The chief executive of the arms giant Eads UK, Mr Southwell is one of the country's most respected and influential businessmen. He was appointed a government ambassador for British industry in 2011, and has accompanied the Prime Minister on trips to India and the Middle East.
In 2012, when Mr Cameron was criticised for using a rented American-made Boeing plane during a business trip to Indonesia, Mr Southwell stepped in to offer him an Airbus model from his own fleet.
The Prime Minister appears to value the assistance of the business leader in developing markets overseas. But Mr Southwell is facing some awkward questions rather closer to home – questions which should also be directed to Bank of Scotland (HBOS), the multibillion-pound bank which had to be rescued by the British taxpayer at the height of the credit crisis because of a catalogue of reckless lending that brought it to the brink of extinction.
While running EADS UK, Mr Southwell, 54, was also a non-executive director and shareholder of Corporate Jet Services, an exclusive private jet group which owned planes hired out by the likes of David Beckham, Max Clifford and media mogul Richard Desmond.
The Beckhams at the Met Ball earlier this month However, an analysis of the company's brief but extraordinary five-year history sheds light on some of the decadent lending policies that led, according to the National Audit Office, to each and every taxpayer forking out £7,600 to prop up the disgraced banking industry.
When Corporate Jet Services (CJS) went bust just before the financial crash in September 2007, it had assets of only £2m. Yet according to an official receiver's report setting out its assets and liabilities, the company owed HBOS an astonishing £113m.
As its balance sheet collapsed, the beleaguered bank placed the company into administrative receivership with PricewaterhouseCoopers (PwC), but then encouraged the accountancy giant to sell the profitable assets back to the same directors – including Mr Southwell – for what one expert now describes as a "knock-down price".
This decision was bizarre as the company – seemingly under the control of its directors, with Mr Southwell as a non-exec – had caused a loss to HBOS of about £100m, with the bank writing off £60m worth of debt on a single day in March 2008.
Seven months later, the British government was forced to spend more than £20bn of public money bailing out HBOS's reckless lending positions, helping to usher in the current "age of austerity" that still dominates life in Britain today.
Prem Sikka, professor of accounting at Essex Business School, said: "How can HBOS have lent £113m to a company with net assets of only £2m? Unsurprisingly, this kind of unsound judgement eventually resulted in a bailout of HBOS by taxpayers. There is a massive wealth transfer to directors who picked up assets at a negligible price, and insolvency practitioners who collected high fees while owing no duty of care to taxpayers or unsecured creditors.
"This insolvency should be examined by the Business Secretary Vince Cable. This is a huge write-off and the cost of this has been borne ultimately by the taxpayer. It raises further questions about the quality of management at HBOS and its relationship with some of its clients. The pre-pack management buy-out has enabled directors to acquire assets at knock-down prices. It has left unsecured creditors high and dry."
Mr Southwell said via his lawyers that he was appointed "at the express instruction of HBOS" to assist a company in difficulty, that at times decisions were taken with the "encouragement" of the bank and "if anyone is to blame for CJS's difficulties, it should firmly be laid at the door of HBOS".
David Cameron on a business trip to Indonesia David Cameron's business adviser said via his lawyers that his role was "legitimate and uncontroversial"; he always acted in a "prudent and professional manner" and that he was "not part of the dedicated executive management team".
When his new company bought the subsidiaries of Corporate Jet Services in 2007, Mr Southwell said he took part in the management buy-out only to save 250 jobs as there was no other alternative in the wake of the credit crunch.
Jet firm to the stars
Mr Southwell was first appointed as a director of CJS in 2002. His lawyers stated that he was a "non-executive director" and was installed "at the direct request of HBOS".
He also stressed that his involvement in the company was very much a hands-off capacity "to provide corporate governance and management advice at a board level in a non-executive role".
That notwithstanding, flight manifests from CJS, seen by The Independent on Sunday, show that Mr Southwell and his wife were passengers on one of the company's jets when it flew to the tax haven of Monaco – via Cannes – in December 2003. The Southwells were accompanied by an HBOS bank manager. His lawyers said this was a business trip exploring a "potential three-year sponsorship deal relating to an event in Monaco which had the potential to generate significant business for CJS on the UK to South of France route". They also said that the potential business partner had "specifically" asked to see one of the company's planes.
Jamie and Louise Redknapp last year; Jamie Redknapp used the companies planes The jets were not only used by Beckham and Clifford. Other celebrity clients included football star Jamie Redknapp and the late film director Michael Winner. Despite enjoying super-rich clients, the company was struggling financially and, towards the end of its short existence, failing to file its accounts.
CJS failed to file accounts at Companies House for the years ending 2005 and 2006, during which time its debts to HBOS leapt from about £28m in December 2004 to the extraordinary figure of £113m when it went bust three years later.
Lawyers for Mr Southwell said that "many of the debts" were transferred to the company by HBOS before Mr Southwell became involved in 2002.
Because of the lack of published accounts, it is not possible for The IoS to ascertain how the huge liabilities were racked up.
Lord Oakeshott, a former Liberal Democrat Treasury spokesman, has serious concerns over the company's trading history – and its relationship with HBOS.
He said: "A failure to file accounts is a breach of company law and it is astonishing that HBOS would lend such a huge amount of money to a firm with relatively minor assets.
"This raises very serious questions of corporate governance. The bank should have known Corporate Jet Services had no prospect of meeting its debts."
Film maker Michael Winner Lawyers for Mr Southwell told The IoS that he was a "nominal shareholder" in CJS, and that HBOS was the "effective shareholder of the business" who "at all times maintained an extremely active interest in all company affairs" and "continually encouraged further purchases of aircraft using debt finance provided by them". Lawyers said on behalf of Mr Southwell that he received a modest £25,000 a year for his non-executive role.
However, CJS accounts prepared by the finance director show cheques totalling just over £250,000 were made out to Mr Southwell personally over a 10-month period up to February 2007.
Lawyers for Mr Southwell said he could not remember what this money was for, and attempts to find out had been hampered by the fact that his bank's records did not go back that far. However, they said that all payments were "in no way unusual" and would have been made with the "express authority and approval of HBOS".
Alarm bells over Corporate Jet Services indebtedness finally rang in May 2007 when HBOS appointed PwC to "investigate the financial position" of CJS. Administrative receiver David Chubb of PwC soon established that it was "insolvent" and recorded that he was "instructed" to find buyers for the ailing business and its subsidiaries.
The company limped on until HBOS – as the main secured creditor – placed it into administrative receivership with PwC in September 2007.
David Cameron speaking However, on the same day, the bank then directed the accountancy firm to sell the company's subsidiaries to a new firm Quest Aviation Services Ltd, part-owned by Mr Southwell, who was also the chairman. The deal was struck for an initial payment of just £50,000 plus future payments based on results that, by 2012, had reached £5m.
Mr Chubb from PwC said the sale to the directors was agreed because the company "had insufficient funds to support the trading subsidiaries during a prolonged marketing campaign".
However, documents from Quest dated January 2008 and seen by The IoS may suggest another reason for the pre-pack administration. "In the early part of 2007, the management team at CJS comprising Robin Southwell and [two others] concluded that the strategic development of the business was likely to be better served under an independent ownership structure less encumbered by the legacy trading of the various subsidiary companies."
Mr Southwell said via his lawyers that he was appointed by HBOS to assist a company in difficulty and was only ever a non-executive director that acted on the bank's instructions.
His lawyers said it would be "misleading and damaging to suggest that the pre-pack and purchase by Quest was in any way premeditated or preplanned by our client". They also said Quest continued "clearing obligations on behalf of HBOS until 2013".
Who really owned Corporate Jet Services and how did it rack up such huge debts?
Mr Southwell said he was a non-executive director and "nominal shareholder" of Corporate Jet Services. He repeatedly directed The IoS's inquiries over the company to HBOS which he described as the "effective shareholders of the business" and said he acted at the "invitation and encouragement of firstly HBOS and then PwC on behalf of HBOS". The bank declined to comment on this claim.
He told us via his lawyers that HBOS "at all times maintained an extremely active interest in all company affairs" and "continually encouraged further purchases of aircraft using debt finance provided by them". The bank refused to answer any questions over the matter, saying it was a "confidential issue".
According to documents filed at Companies House, Mr Southwell was a shareholder in CJS from its inception in 2002 until late 2005 when his shareholding was transferred to a company called "Sandstone Organisation Limited". This company, in turn, was owned by a nominee company called Devonshire Registrars Ltd, which makes the true ownership impossible to determine from publicly available records.
However, board minutes from CJS just after the share transfer to Sandstone may provide a clue. They list under the heading "Actions Completed": "Shareholding of Corporate Jet Services transferred to Bank".
HBOS Chief Executive Andy Hornby speaks with media after Lloyds merged with the Halifax on September 18, 2008 If HBOS really did beneficially own the company, it would raise questions over where the money actually went – and how it could write off such mammoth losses when the loans were made to entities beneficially owned by itself.
When The IoS shared its findings with Lord Oakeshott, he said he would be raising these matters with the Government as HBOS merged with Lloyds in 2008 and the Treasury still retains a significant stake in the banking giant.
The Liberal Democrat peer said: "We need to get to the bottom of this sorry saga. Mr Southwell appears to be suggesting HBOS had a beneficial ownership and some control over the company. Why did they not disclose this? It is outrageous that this little company alone seems to have cost every taxpayer £1 when we bailed out HBOS."
As we have seen, Corporate Jet Services had a formal overdraft facility with HBOS of only £800,000 and assets of only £2m when it went bust in September 2007. So who in the bank approved the huge liability well beyond its overdraft amounting to £113m?
Mr Southwell directed The IoS to the bank, and a Lloyds Banking Group spokesman refused to comment, saying it was a "confidential matter".
Peter Cummings, a senior HBOS director handed a lifetime ban by the Financial Services Authority for his role in the credit crunch, told a parliamentary commission into the banking crash that a single "Level 8" loan over £75m had to be approved at "executive" level.
Even if the HBOS board monitored only single payments of £75m and above – and in the case of CJS the huge debt was created via multiple smaller loans – it appears to have been a costly mistake for the bank not to check overall liabilities.
The expensive subsidiary
Without full disclosure of the company's accounts, it is very difficult to say where all the money went. However, internal CJS financial statements, prepared by the finance director and seen by The IoS, may suggest one answer.
They detail six-figure transfers from CJS coffers every month to Euromanx, one of its subsidiaries based in the tax haven of the Isle of Man. Mr Southwell is listed as chief executive on the company's annual returns. His lawyers said he was a non-executive director. According to company records, just under 30 per cent of its shares in Euromanx were owned by Mr Southwell through another Isle of Man company called Deepdene Limited.
Euromanx briefly ran its own airline in the Isle of Man, which was launched in a blaze of publicity in February 2005 at a lavish party at a country club attended by Max Clifford and Simon Cowell, the pop music mogul.
Disgraced publicist Max Clifford Speaking at the launch in the Isle of Man, one of the directors reportedly told the London Evening Standard: "Having people like Max and Simon around attracts attention. Of course, having Max around may look like we are overdoing it and setting up ourselves for a fall. We'll see."
In hindsight, his words appeared remarkably prescient, as Euromanx also went bust in controversial circumstances, owing the Isle of Man government £1.5m and costing 70 jobs.
In May 2008, Tony Brown, the chief minister, told its parliament that when the company's last aircraft left the island, Euromanx waited until two minutes after take-off to inform the airport that the company was bust. He said this was "a deliberate act by the owners of Euromanx so as to ensure that the airport authority could not arrest the Euromanx aircraft as security against any outstanding debt".
Lawyers for Mr Southwell said this was "inaccurate and a distortion of the facts" as the aircraft was only leased by Euromanx and "owned by a bank".
According to documents lodged at Companies House by PricewaterhouseCoopers, the aircraft was owned by Corporate Jet Services, which had recently changed its name. Euromanx was eventually placed into liquidation.
When Corporate Jet Services went into administrative receivership, Mr Southwell was being paid £737,000 a year for his job leading EADS UK.
Throughout his involvement with CJS, Mr Southwell was running some of this country's largest multibillion-pound PFI projects. In July 2005, he was made chief executive of EADS UK with overall responsibility for a hugely sensitive satellite surveillance system and work on the Ministry of Defence's Eurofighter Typhoon programme.
Corporate Jet Services minus its subsidiaries was placed into liquidation in 2010. However, almost four years on, liquidator Elliot Green of Oury Clark, who was appointed at the behest of an unsecured creditor, is still trying to obtain CJS documents from PwC, which retained them from its time as administrative receivers. After engaging in correspondence, the liquidator has now resorted to litigation and a High Court hearing is scheduled for later this year.
HBOS refused to answer any questions about its relationship with CJS or Mr Southwell, citing it as a "confidential matter".
'Out of control'
The government regulator that was supposed to keep the Square Mile in check was the Financial Services Authority (FSA), which was run by former bankers.
James Crosby From 2004, former HBOS chief executive James Crosby combined his role at the bank with a directorship at the FSA. Eventually, he became the City watchdog's deputy chairman in 2006.
At the height of the financial crash in 2009, HBOS's ex-head of risk, Paul Moore, blew the whistle and said he warned the FSA in 2004 that the bank was out of control.
Mr Crosby resigned from the FSA the day Mr Moore made his claims to the Treasury Select Committee, although he insisted his former colleague's allegations had no merit.
In its damning conclusions published last year, the banking commission named Mr Crosby as the "architect" of the bank's downfall and he was eventually stripped of the knighthood bestowed under Gordon Brown's administration. Mr Crosby said he was "deeply sorry for what happened at HBOS" and offered to give up 30 per cent of his £580,000p.a. HBOS pension
Andrew Tyrie MP, the chairman of the commission, said: "The HBOS story is one of catastrophic failures of management, governance and regulatory oversight. The sums would never have added up."
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