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Farepak

Volume 697: debated on Monday 10 December 2007

My honourable friend the Parliamentary Under-Secretary of State for Trade Policy (Gareth Thomas) has made the following Written Ministerial Statement.

I would like to bring the House up to date on a number of matters connected to the collapse of Farepak.

Investigation of the collapse

The Department for Business, Enterprise and Regulatory Reform's companies investigation branch conducts investigations into companies where there is concern over the way a company's business has been conducted (usually a suspicion of fraud, misconduct or sharp practice). That is why an investigation was instigated into the collapse of Farepak within days of the appointment of administrators.

While the companies investigation branch completes 90 per cent of its investigations within six months, the investigation into Farepak has regrettably taken longer because of the huge number of documents that have had to be analysed, the inter-company relationships and the numerous parties to be interviewed. The investigators (CIB staff with long experience of these types of investigations) have compulsory powers—those facing questions must answer them or face court proceedings. These powers are certainly wide enough to embrace all those who have had dealings with Farepak, including its bankers and advisers. It is anticipated that the investigation will be completed early next year.

As a proportionate and acceptable balance against these compulsory powers, the Companies Act requires that these investigations be accorded a limited disclosure regime—information obtained can be disclosed only through legal gateways and the report cannot be directly published.

But if subsequent court proceedings are initiated as a result of the investigation—such as disqualification proceedings against a director, or any prosecution, the story will be revealed during those proceedings. The report can also be disclosed to other regulators so that any appropriate lessons can be learnt.

Liquidation of the company

It is the liquidator's central duty to secure as much of a return as possible for all the creditors, including the customers. We understand that they are expecting to be able to secure a return of about 5 pence in the pound.

It is not yet possible to confirm when a payment will be made to customers as every agent and customer claim must be finalised before this can take place. As well as processing claims, the team has had a huge task in verifying claims and double checking that claims have not been duplicated by agents and customers. This work so far has reduced claims by approximately £2 million for the benefit of creditors.

Action to protect and inform consumers for the future

The Government have worked closely with the remaining companies to put in place effective measures to protect customers' payments, including oversight by a new body, the Christmas Prepayments Association, and a code of practice. The companies have put in place new independently-controlled trust accounts to protect customers' money. The OFT has carried out a preliminary assessment of the code against the criteria in its consumer codes approval scheme, and the association has amended the code with a view to making a formal application for approval under the scheme.

The Government have also given the OFT £1 million for a consumer education campaign so that consumers are better aware of their options for Christmas savings, and are empowered to make decisions that are right for their own circumstances. The Government's action plan for financial inclusion announces that the OFT will receive a further £2 million funding to continue the Save Xmas campaign into the next spending period.

We note the view of the Treasury Select Committee in its 13th report that, provided the operation of these arrangements proves to be satisfactory, formal regulation of this market is not likely to be appropriate or proportionate. But it remains our intention to reassess the regulatory framework once the outcome of the investigation is available, taking account of earlier advice from the OFT and FSA.