Why DID RBS sell tech firm for £200m less than it was worth?
FOR a scandal-hit firm reeling from the effects of massive fraud, it was meant to be a fresh start. Software company Torex Retail had collapsed after accounting crimes that saw three executives jailed.
So when a crack turnaround unit at Royal Bank of Scotland stepped in to help, chief executive Neil Mitchell might have assumed the worst was over.
But now, nine years later, amid bitter recriminations and a £128m lawsuit, those hopes of a bright new future lay in tatters.
Mitchell claims that RBS’s global restructuring group deliberately pushed Torex into administration and then sold it for a knockdown price. And during the financial crisis, he believes scores of other struggling companies were asset-stripped by the bank after turning to it for help.
‘I am seeking justice not only for myself, but also in the public interest of the hundreds of viable British businesses, thousands of employees and their families which have been destroyed by greed,’ he said. ‘The fight to expose the alleged corruption at the highest level of RBS continues.’
Torex’s woes began long before RBS became involved. In January 2007, the firm was riding high. Mitchell – who had taken up the reins a few months earlier – had boasted it was a company with a ‘solid business platform’.
Bosses issued a triumphant update to the stock market revealing £80m of contract wins, securing major clients including the owner of Homebase and Argos. It was further evidence of growth for a business with bold ambitions and a high profile on the AIM stock market.
But days later, investors were stunned by a shock profit warning. Trading in shares was suspended, the firm announced debts were £23m higher than expected and an investigation was opened by the London Stock Exchange.
Chaos reigned behind the scenes. Mitchell had uncovered irregularities in the company’s accounts. By the end of January he had been suspended himself – a consequence, he said, of his decision to blow the whistle and issue the profit alert.
Evidence he handed to Serious Fraud Office investigators led to a series of raids on the properties of other executives.
Mitchell claimed to be in fear of his life after an encounter with two heavily built men at a London Underground station and became ‘a man on the move’ from one hideout to another.
This dramatic boardroom clash culminated in a series of criminal court cases which saw three executives jailed for falsifying documents in a £6.5m accounting scam to make the firm appear more profitable than it was.
Finance head Mark Woodbridge, former chief executive Chris Moore, and chairman Robert Loosemore were sentenced to a combined eight years behind bars.
Mitchell said he was delighted at this ‘just outcome’. But it came too late for his own career. The disastrous debt update he had given to the market back in 2007 meant Torex had violated its loan agreement. And that gave its banker RBS – the owner of NatWest – the green light to get involved.
STILL suspended, Mitchell watched helplessly from the sidelines as his company passed into the hands of the restructuring group and was sold for – in his view – significantly below its market value.
This was launched in the 1990s as a way of rescuing troubled businesses.
Staffed by experts, the idea was it would operate as a sympathetic turnaround group to save the bank’s debtors from collapse. But just as Torex was in its hour of greatest need, RBS was experi- encing problems of its own. After years of growth which had seen it become a symbol of City wisdom and prudence, the bank was teetering on the brink of collapse. It was forced to beg for a £46bn bailout in 2008 – and its actions were later blamed for helping trigger the financial crisis.
The bank was led by notorious boss Fred ‘The Shred’ Goodwin at the time and the sale of Torex happened on his watch. It has since been alleged that the restructuring group was increasingly used as an opportunity to make profits.
The claims, which RBS denies, suggest that far from trying to save firms in difficulties, the bank was looking to run them into the ground and seize their assets to shore up its own flagging balance sheet.
In 2013, a report by Governmentbacked entrepreneur Lawrence Tomlinson argued executives at many companies were ‘forced to stand by and watch an other-wisesuccessful business be sunk by the decisions of the bank’.
Mitchell claims this is the position in which he found himself, when, six months after first blowing the whistle, he was fired while still on suspension. To the chief executive’s impotent rage, Torex’s assets were then sold to US private equity giant Cerberus for £204m. RBS and other lenders got most of their money back but shareholders were left with nothing. Mitchell had 425,000 shares which were worth around £177,000 when trading was suspended.
The whistleblower, who has repeatedly confronted RBS about the deal, claims Torex was worth £ 600m. He said rival bidder Golden Gate Capital had made a £390m offer but this was rejected due to collusion between RBS, Cerberus and consultant KPMG.
Mitchell is pursuing all three through the civil courts for £128m of damages.
WHILE Cerberus declined to comment, KPMG said: ‘We strongly refute the allegation that KPMG or its members have acted improperly; there is no substance to the claims that have been made. The courts have previously dismissed similar allegations and we have applied to have the current proceedings struck out.’
An RBS spokesman said: ‘ We have thoroughly investigated Mr Mitchell’s allegations and believe them to be entirely without merit. Mr Mitchell has chosen to issue legal proceedings which will be met by a full defence.’
RBS commissioned a £1.5m report from law firm Clifford Chance to investigate its restructuring unit. This found no evidence customers were systematically defrauded. Mitchell’s case is nonetheless likely to be the first in a string of lawsuits from outraged executives. And for the Torex scandal, it is just another chapter in a long and unedifying history.