Solving a Chinese puzzle
THERE is no shortage of blame to go around for the collapse of Thomas Cook. Directors, including chief executive Peter Fankhauser, already find themselves in the stocks.
The Cook demise demonstrates that when push comes to shove, independent directors (and there were six, including highprofile media executive Dawn Airey) can do little to avert disaster.
Fankhauser and his team will face accusations of misleading customers by allowing them to book vacations right up to the collapse in the early hours of Monday.
But there is little choice for executives running airlines and travel companies to keep schtum, as with banks in difficulty. Once clients smell weakness, confidence vanishes and there is a run.
Thomas Cook’s biggest investor, Fosun, was key to the travel group digging itself out of trouble. It was due to support the travel operator by pumping in £450m through a swap of debt for equity.
One cannot imagine that this transaction was looked upon with any equanimity in Beijing. The current negative attitude about Chinese enterprises spreading their wings was illustrated by the hostile approach from the Chinese authorities to the Hong Kong stock exchange’s attempted swoop on London Stock Exchange. Recent data shows that Chinese outward investment fell 9.6pc in 2018 – only the second decline in recent time.
The Chinese authorities have sought to crack down on capital flight. In fact, President Xi has specifically hit the brakes on Chinese companies buying up property, cinemas, hotels, sports clubs and other leisure facilities. The only overseas investment on the approved list at present is anything to do with the Belt and Road Initiative, which is China’s influence-building exercise along the old Silk Road trade route.
Fosun has not been a Beijing favourite for some time. The Chinese-based, Hong Kong quoted enterprise has spent billions buying up firms on Beijing’s proscribed list, including Club Med, Canada’s upmarket performance group Cirque du Soleil, Greek designer jewellers Foli as well as Premier League football club Wolverhampton Wanderers.
The group’s chairman, Guo Guangchang, temporarily went missing a few years ago amid speculation that he was ‘helping’ Xi in his anti-corruption drive.
In the end it may well have been Britain’s bailed-out banks, Royal Bank of Scotland and Lloyds, which cavilled when asked to come up with an extra £200m of cash to see Thomas Cook through a few difficult weeks.
But the rescued banks also have a fiduciary duty to shareholders pummelled by the financial crisis and left high and dry by the dilution of their holdings.
In declining to come up with a short-term facility, the banks effectively provided Fosun with a handy escape route.
Secret service
INQUIRIES into corporate collapses conducted under the Companies Act have been notoriously slow and fallen out of fashion.
The process of Maxwellisation, under which those criticised are allowed to see confidential drafts, was a factor in their demise. More recent practice is to shove off inquiries to the Insolvency Service, which is now to happen at Thomas Cook.
no one should kid themselves that the Insolvency Service is equipped for the task and the taxpayer (ladling out money) will get the answers deserved.
A brief Insolvency Service statement in 2017 regarding the failure of BHS exonerated former owner Philip Green and promised court action against buyer Dominic Chappell and other directors. As the matter was going to trial for disqualification proceedings, nothing else was released.
Two Commons committees wrote to the Insolvency Service last week asking for an update on Carillion, which collapsed 20 months ago. using the service for such inquiries is a good way of burying them until such time as interest has dissipated.
When BCCI collapsed three decades ago, an inquiry by Mr Justice Bingham reported in less than a year.
There is no case for the Thomas Cook affair to be looked at behind closed doors without full public scrutiny. Business Secretary Andrea Leadsom must think again.
Raw material
THE 120-year-old British industrial concern Low & Bonar saw its stock shoot up 99.4pc after the board succumbed to a £107m offer from German predator Freudenberg.
Another UK technological firm, in its own words, ‘leading the world in performance materials’, bites the dust. Pity that it is easier to chuck away than mend.