Exclusive: Yellow Pages investors accuse board of dereliction of duty

Hibu shareholders demand an investigation into directors' conduct over debt pile

Angry shareholders in collapsed Yellow Pages publisher Hibu are urging City watchdogs and the Business Secretary Vince Cable to investigate the conduct of the company's directors.

The Independent has learnt that the Hibu Shareholders Group (HSG), which claims to represent 30 per cent of the shares, has written to the Financial Conduct Authority (FCA) and persuaded a string of MPs to take an interest. HSG has also recruited Barry Dearing, the solicitor who successfully represented investors in failed doorstep lender Cattles.

The aggrieved shareholders argue the Hibu board could have acted far sooner to tackle its debt pile and inform the stock market more clearly before the shares' eventual suspension in a debt-for-equity swap in July. That wiped out the shares in the company which was once worth £5bn.

However, earlier this year, while the shares were still being traded, so-called vulture funds bought up Hibu's debt cheaply, which meant they now have a stake in the company while shareholders have nothing.

"HSG is extremely concerned that this situation has been engineered to suit a pre-determined narrative of wiping out shareholder value in the company," said the shareholders in a letter to the FCA seen by The Independent.

"It is HSG's view that the Hibu board of directors is in breach of its fiduciary and legal duties towards its shareholders including private investors. The way the Hibu board of directors has allowed the shareholder wipe-out, at best amounts to a serious dereliction of duty."

Mr Dearing said Hibu should not have let the shares be traded for so long. "You've had a company in dire financial circumstances for the thick end of 12 months and the shares are still being traded. When they get to that situation, the least they can do is get the shares delisted. In my view, it's a false market. The directors knew what was going on [before July 2013] and the shareholders didn't."

The letter makes a series of other allegations:

* The board "misled" shareholders in 2012 about "protecting their interests to the fullest extent".

* The board "decided to go into a voluntary default earlier this year despite having sufficient funds available" to make loan payments, "hence creating a very serious situation".

* The 2012-13 accounts were not prepared to an international standard.

* The decision to let the executive directors, particularly chief executive Mike Pocock, stay in post following the suspension of the shares "seems too cosy".

A spokesman for Hibu declined to comment but strongly denied all of HSG's claims. A source said the board had followed all its fiduciary duties; it tried to protect shareholders' interests and warn them the shares could be worthless; it did not try to engineer a "pre-determined narrative"; Mr Pocock has done his best to turn around the company; and the accounts were signed off by auditors Pricewater-houseCoopers to the same standards as previous years.

Mr Dearing said: "It appears to me the company has not done things as it should have done. If this isn't a matter for the FCA, I don't know what is."

The FCA said it has received letters from MPs but indicated an inquiry would be up to the UK Listing Authority and Department of Business.

Tory MP Jonathan Evans said a key issue was whether there were any "breaches in relation to the Companies Act" in how the directors ran Hibu, although he stressed he did not know the merit of HSG's allegations at this stage.

The HSG is understood to have attracted more than 400 shareholders and built up a "substantial" legal fighting fund.

Controversy: Main points

Missed £74m in loan payments in February and March 2013, despite having close to £200m in cash.

Paid annual bonuses for 2012-13 to 2,500 staff two months earlier than usual in April 2013.

Delayed publication of 2012-13 annual results, which were only released after the company's shares were suspended in July 2013.

Did not reveal annual bonuses paid to executive directors in 2011-12.

Chief executive Mike Pocock appeared to suggest strategic partnership with Microsoft was imminent but it did not happen in July 2012.

Q&A: Hibu unravelled

Q. What is Hibu – and what went wrong?

The company, which was known as Yell until last year, used to make big profits from Yellow Pages printed directories. But a debt-fuelled acquisition spree before 2007 and the arrival of the internet undermined the business model.

Q. Why was Hibu allowed

to run up £2bn of debt? Former chief executive John Congdon and his bankers were too ambitious. Mr Condron, who stepped down in 2010, also failed to move fast enough to adapt Yellow Pages for the online age.

Q. How has the present chief executive Mike Pocock done?

He has a track record as a turnaround expert but is a controversial figure. He banked a £937,000 bonus in 2011 even though revenues kept falling. He paid 2,500 staff bonuses in April of this year despite Hibu missing £74m in loan payments.

Q. Could Hibu have done things differently?

When Hibu failed to keep up loan payments, it was likely that lenders would seize control and the shares would be suspended. But some angry shareholders reckon Hibu's board made big errors of judgement and were less than frank. The board denies that. No wonder lawyers are involved.

Q. Can Hibu survive?

With annual turnover of £1.3bn, there is a cash-generative business and it will have less debt after lenders wrote off a big chunk. Mr Pocock wants to see the turnaround through. But print keeps falling and digital growth is patchy. Critics say he failed to do enough during his two-and-a-half years in charge.