Farepak's empty promises

The £40m Christmas hamper scandal
Click to follow

For 140,000 low-income families across Britain, Farepak's hampers were a seasonal godsend. For just a few pounds each month, they could enjoy some modest Christmas treats without sliding into debt. But this year, the company's spectacular collapse has cheated them of their precious savings. Are they simply victims of bad luck? Or was corporate greed to blame?

To those for whom festive luxury this year will mean grand cru champagne and chocolate truffles bearing Fortnum and Mason's insignia, the prospect of unwrapping a Farepak Christmas hamper may seem a most unappetising proposition. Nowhere inside it will you find bottles of St Emilion, baked pecan nuts or Fountain Blend tea - each of which features in this year's Fortnum's range - but instead a turkey, bags of crisps, biscuits, and Fray Bentos pies, along with tinned peas and tomatoes for the kitchen cupboard.

The contents might seem painfully modest, but to the millions of Britons who have unwrapped one since the Farepak Christmas savings club began trading from a Peckham butcher's shop in 1969, the hampers have always been regarded as a cherished seasonal treat. It's the sort of savings scheme unheard of in more affluent areas of Britain, but the main benefit of the "Christmas club" is self-evident to the 140,000 people - many of them lowly paid, disabled or elderly - who are on Farepak's books. For as little as £10 a week, paid throughout the year, all the costs of Christmas are covered without any recourse to credit cards or the loan sharks who thrive on the financially stretched.

Until this year, that is. The members of Farepak's "club", some of whom have invested more than £2,000 in anticipation of getting hampers and vouchers to spend on presents at high street stores, have been told that all their money has been lost following the collapse of Swindon-registered Farepak's parent company, European Home Retail (EHR). From Dunbartonshire to Dorset, individuals and families are facing the prospect of a Christmas bereft of the most basic provisions. The total financial loss to these people is anything between £27m and £40m - though no centralised records have been maintained - and rarely has the House of Commons been a scene of more unanimous outrage than during Wednesday's debate on the subject, described by the Trade minister Ian McCartney as "a national emergency".

Few are more devastated by the collapse than Suzy Hall, a single mother of two who has seen £400 of her own savings disappear, along with £200 invested by her parents and £400 by her brother and sister - all of whom she had persuaded to join up for the first time this year. "Don't ask me how I've been able to explain this to my parents," she said yesterday. "Every pound we saved was hard for us."

Many MPs, including Gordon Brown, indicated yesterday that they will take up Mr McCartney's suggestion that MPs should donate a day's salary towards the Government-backed fund established to help those impoverished people who have been hit by the firm's collapse. EHR's banker, Halifax Bank of Scotland (HBOS), also pledged £2m to the Farepak Response Fund.

But there was no sign of largesse yesterday from any of the three wealthy men who have presided over the company's collapse and who have steadfastly refused to answer any questions about the affair in recent days. Few businessmen have been the subject of such universal approbrium as has, in the past 48 hours, EHR's £100,000-a-year chairman, Sir Clive Thompson, the Bentley-driving former president of the Confederation of British Industry. Sir Clive was known as "Mr 20 Per Cent" during his long stint as chairman of Rentokil Initial, in celebration of the ambitious growth targets he set for the company before it overreached itself and came crashing back to earth.

Knighted in 1996 for his "services to British industry", Sir Clive famously earned £466.34 an hour during his CBI days in the late 1990s, when he was urging the Government to keep the national minimum wage under £3.20 per hour. Those were the days when he reinforced his reputation as a business bruiser, likening the unions to "pest control". " I've always liked winning," he said at the time. "I wanted to be successful with the lowest risk and lowest effort. Success is very important. "

His current roles include positions at British American Tobacco, Mitie Aviation, the drugs company Wellcome, and EDF Energy, of which he is a director. But it is his non-executive post at Farepak for which he may now be best remembered.

Sir Clive was described in the Commons on Tuesday as a "modern-day Scrooge" and "the 21st-century version of the Sheriff of Nottingham " by the Scottish Labour MP Jim Devine, many of whose constituents have been caught up in the collapse.

The nearest Sir Clive has come to answering for EHR, which he has chaired for five years, came several weeks ago when he was tackled in his dressing gown at the door of his £2m home on an exclusive road in Sevenoaks. "You should speak to the managing director, not me," he said on the doorstep.

But the managing director, another multi-millionaire, is even less forthcoming, and had gone to ground yesterday. Oxford-educated Nick Gilodi-Johnson, son of Farepak's founder, Bob Johnson (himself one of Britain's wealthiest 500 people before his death in 2001), stands to inherit with his sister, Chiara, a £75m fortune on the death of their mother, Bruna. Mr Gilodi-Johnson has been keeping a very low profile around the £1m London home he shares with his wife Vanessa, an investment banker, and their £3m mansion in Roehampton. Perhaps he is in Sardinia, where the couple have their holiday villa?

Certainly, Mr Gilodi-Johnson's behaviour might not have impressed his father, whose common touch lay behind the success of the firm he took on 37 years ago. Its roots can be traced back to 1935 but it was Mr Johnson who named it Farepak Hampers and began trading from a house in Westmead Drive, Swindon. By 2004 Farepak employed 130 staff, and, during hamper production, an additional 150 temporary packers. Corporate ambition finally lead to its purchase of Kleeneze Homecare in 1995, which then changed its name to Kleeneze plc and eventually European Home Retail plc (EHR) in 2006.

Also of interest to Farepak customers is William Rollason, EHR's chief executive and a one-time colleague of the Conservative Party leader David Cameron at the media firm Carlton Communications. Mr Rollason moved to EHR in 2002 after he was ousted from National Express, the public transport group, where, as finance director, he earned £200,000 a year.

Sir Clive's office, which resisted all attempts to contact him, suggested yesterday that he might actually have left EHR. "He is not with the company any more," a company official told The Independent. But as more facts about the firm's collapse come to light, the three senior figures may not be able to evade explanations for much longer. In particular, Sir Clive is under pressure to reveal why Farepak customers were encouraged to keep making their weekly payments to agents, who in turned passed them on to the company, when the firm knew as long ago as June that it might be about to go bust.

EHR announced to the Stock Exchange on 30 June that it was experiencing cashflow problems and would run out of money by the autumn, unless it could borrow more cash. On 23 August, HBOS said it would lend no more because the firm was beyond saving. At this stage, the Hamper Industry Trade Association (Hita) intervened and urged EHR to ensure that Farepak customers' money was preserved for the Christmas pay-out and not siphoned into any other EHR funds, to offset the financial difficulties. Hita received short shrift, according to its spokesman, Neil Henderson-Begg. "We asked whether they were ring-fencing the money the [Farepak] agents were sending in. They said they didn't have to," said Mr Henderson-Begg. "They said they were confident they would get additional funding and honour their obligations. Our concern is that the Farepak payments may have been used to support other parts of the business."

Companies House records suggest that Hita's fears were legitimate. They show that payments of £17m and £23m were made by Farepak to EHR. Because the sector is not regulated - an issue the Secretary of State for Trade Alistair Darling is expected to examine in the investigation he has ordered into Farepak's collapse - it was legal to use the hamper money to prop up the plc.

The DTI may also want to know why, despite the obvious financial crisis, Farepak encouraged its agents to bring in money as it teetered on the brink. Agents testify that reminders were sent out asking for payments up to 31 October, when EHR announced that it was going into receivership.

The reasons for the firm's rapid financial decline - from a profit of £6m last year - are complex, but they also call into question the strategic decisions made by the directors of the company. For example, some analysts have blamed Mr Gilodi-Johnson and his co-directors for their decision to move into the TV shopping market. "The blame must fall squarely on the management for trying to do too much too quickly with regard to creating a multi-channel operation - and not doing it well," said one analyst. Another disastrous move was EHR's decision to buy a toy and book business, DMG, for £35m, including £31m in cash. The acquisition led to substantial asset write-downs and a profits warning. Mr Rollason quickly divested EHR of the company for £4m when he arrived in 2003, but the damage had been done by then, say the analysts.

Sir Clive and Co are not the only individuals to be caught up in the aftermath of a financial collapse that has hit Britain's most vulnerable. HBOS has faced calls for a nationwide consumer boycott because of its role in Farepak's collapse, for which it was described by Swindon's Labour MP Anne Snelgrove as a "Christmas Scrooge". The bank stands accused of failing to protect Farepak's vulnerable customers. An Early-Day Motion put down in the Commons by the Labour MP Frank Field alleges that HBOS " allowed Farepak to continue trading while it clawed back something like £1m of people's savings to offset the company overdraft with the bank". A growing tide of Farepak's customers are directing anger at HBOS. A website, unfairpak.co.uk, has published e-mail addresses of HBOS executives and a message board on the site entitled "How Farepak Stole Christmas" has received over 1,000 posts.

Announcing its contribution to the emergency fund yesterday, the bank said it could not have done more and denied claims by Jim Devine and others that it prevented a rival company buying Farepak because it did not consider it to be viable. "As a banker to EHR... HBOS at all times sought to help its customer through difficult financial circumstances," HBOS said in a statement. "It is right that the group helps Farepak customers as well at this difficult time."

Others have rallied around to support the families. Another Christmas hamper supplier, Park Group, founded in 1967 by former Everton FC chairman Peter Johnson, has announced it is donating £1m in high street shopping vouchers to the fund. Tesco and Marks and Spencer have also each pledged to contribute £250,000, while Morrisons is donating £150,000.

Sainsbury's and John Lewis agreed with Farepak's administrator that customers who were saving for their vouchers should be able to receive 25 per cent of the value of their total savings.

But that has done little to quell the bewilderment of thousands whose stories reveal most about what an unsavoury story the Farepak crash really is.

Many of the victims are carers, for whom the savings scheme has taken the worry out of preparing for Christmas. David Kelly and his partner Hilary Astley, from Bolton, Greater Manchester, are full- time carers for their two boys, who have speech, learning and behavioural difficulties. Ms Astley wept when she heard of the collapse - and the loss of £1,465 of money she and her neighbours had committed. "The guilt we feel as agents is unimaginable," said Mr Kelly. "It was about £140 a month for us, which is hard to get. When you've got disabled kids they look forward to Christmas so much. It breaks your heart that you can't give them what you planned."

Some agents are attempting to pay back their customers. Jacqui Holden of Hayes, Middlesex, is taking out a £2,000 loan to pay back six of her friends whom she recruited as Farepak customers. "I'll carry the loss and hope I get it back when the administrators settle," she said.

But that kind of action is impossible for most agents. In the street that local newspapers in Middlesex have taken to calling "Heartbreak Avenue", scores of residents have collectively committed an estimated £30,000 to five Farepak agents. The agents in the street - Burns Avenue in Feltham - have collected sums of between £10 and £100 a month from many of the 134 residents. Wayne Taylor, one of the agents, collected £14,000 and Maria Hooper took in £4,000. Maria Hutton had saved £1,000 to buy food and presents for her husband, four children and eight grandchildren. "None of us has experienced debt before," said Mrs Hutton. "We saved and saved and now we have nothing."

Similar stories are emerging from Northamptonshire, where Mary Ann O'Leary of Corby had booked a Pontin's holiday in anticipation of her vouchers; to Surrey, where soldier Clint Southard returned from action in Iraq to find his family's Christmas plans in tatters; and to Runcorn, Cheshire, where Joan Holmes' agents have lost a total of £10,000.

But Scotland, where affection for the hampers and vouchers seems to be strongest, has been hit the hardest. Members of West Dunbartonshire Carers Centre have lost more than £8,000 through Farepak. The support group is run by Audrey Lowe and includes parents who have children with severe disabilities. "My seven-year-old son Kieran is severely disabled, and I attend a support group every Friday," said Ms Lowe. "I have 22 customers and most have kids with severe disabilities. We have lost £8,015 in total which will ruin Christmas for all of us. Kieran has epilepsy and cerebral palsy and the money I saved was for him and my two other sons. I feel totally disgusted. It's now a case of having to go into debt and start paying for Christmas in January."

"I didn't find out about this until two days after the company was put into adminstration," said Suzy Hall, the single mother who had encouraged her parents, brother and sister to join. In four years of involvement with Farepak Ms Hall had always opted for the vouchers, which she would spend on presents for her daughter Chloe, seven, and Ruaraidh, two.

"There is a way out of this for me as I'd been saving separately for a TV which I was going to buy in the New Year sales. At least I have the TV money to buy the kids' presents. They don't get much from the vouchers - it was a Bratz toy for Chloe last year - but I put enough by to be able to buy something for all the family." It is her parents' loss that causes her most anguish - and the elderly lady nearby who had saved enough for a £112 hamper. "It's basic," she said. "Just basic food. There's not even any wine in it. But it means her larder's stocked when the family comes around. Now she can't even be granted that little privilege."