The Mad Hatters

Is this legal? Is it Ethical?

by noseycow

11 Comments to “Is this legal? Is it Ethical?”

1. 
   Mike Harmon
   October 31, 2008 at 11:00 am

   Nice writing style. I look forward to reading more in the future.

   Reply
2. 
   NobblySan
   October 31, 2008 at 11:24 am

   Hi Nosey,

   Legal? Almost certainly

   Ethical? That depends on your personal viewpoint, circumstances and motivations.

   Words often fail me when I read of the ‘performance related’ bonuses paid to certain (ok…most) execs in the financial sector.
   If this is the sort of payout for performance that results in abject failure, then what would they have received had the company turned in a stellar performance?

   I’m sure they can sleep at night. After all they can afford a comfy bed in a fully paid-up des res.

   Reply
3. 
   noseycow
   October 31, 2008 at 11:32 am

   Nobbly

   Its a private business so I guess if the money’s there then they are entitled to take it. Even if its ‘loan money’ (presumably lent for other purposes).

   But I do wonder how they expect to pay back £680 million??

   I find it mind boggling, and I just read that the banks which were bailed out by the US government are going to use that bail out money to pay dividends to the shareholders.

   Reply
4. 
   Realist
   October 31, 2008 at 11:41 pm

   You obviously don’t know about the personal financial investments that some of the directors have put into Towergate, or the fact that one of them gave half his bonus to charity.

   Also, the banks haven’t loaned money to Towergate as such, they have purchased capital stakes in Towergate and are getting a great return on their investments. A company that started 11 years ago with 3 employees that is now worth £3bn with around 5,000 staff is quite something indeed, the banks certainly recognise this great achievement.

   Also, when tax is paid to the Government, it becomes the Government’s money, not the tax payers any more, it changes hands. Therefore, the Government now has stakes in several banks, not the tax payers.

   Reply
5. 
   Carmen
   October 31, 2008 at 11:55 pm

   I’m just a simple soul, Realist……but if the Director didn’t want the half of his bonus that he gave to charity, why not give it to the government to repay part of the loan?

   Giving to charity is a noble act, but not one that would cut much ice with a bankruptcy trustee told that a loan couldn’t be repaid because the money had been given to charity.

   And welcome to the cafe by the way. Pull up a seat.

   Reply
6. 
   noseycow
   November 1, 2008 at 10:54 am

   Realist, true I have no idea about the investments that the directors have put into the company, but as you say it has been undoubtedly successful, so I imagine that the intial (and subsequent) investmensts have been recouped many times over.

   As for giving the money to charity, it doesn’t really make a difference to my point. It matters not if they spend it all on value teabags at tesco’s the fact is that the company (ie the directors) decided to pay themselves these bonuses.

   I understood bonuses were generally linked to performance and a £12mill loss isn’t exactly a great performance is it? And from the articles i quoted, and a laypersons veiwpoint, that decision could be extremely damaging for the company.

   Towergate’s decision in regard to bonus payments is illustrative of a wider problem in UK businesses in my opinion.

   I don’t really care if all directors volunteer for the Samaritans every night, they chose to make themselves responsible for the lively hoods of the staff that they employ, and they should take that very seriousley.

   I can’t remember the exact numbers, but of the (?) 8 U.S. CEO’s who lost their jobs in the recent financial debarcle, only one refused to take the payoff that he was legally entilted to. He is the only one who showed any charactor, or understanding of the morality of the situation.

   Why is it that people who are already wealthy, seem so ready to take money without justification, they surely don’t need the extra cash?

   And as an aside – Government owned companies are termed ‘publicly owned’. But thats a whole seperate topic!!

   Reply
7. 
   cogito
   February 25, 2009 at 3:06 pm

   Towergate’s debts per their last accounts:

   ^A term loan of £130,000,000 (2006: £130,000,000) secured on the assets of Group companies, from a syndicate of banks, is repayable in over 5 years. Interest is charged at Libor +2.5%.
   ^A term loan of £130,000,000 (2006: £130,000,000) secured on the assets of Group companies, from a syndicate of banks, is repayable in over 5 years. Interest is charged at Libor + 3%.
   ^A term loan of £79,475,931 (2006: £75,648,730) secured on the assets of Group companies, from a syndicate of banks, is repayable in over 5 years. Interest is charged at Libor + 9.75%.
   ^A term loan of £61,590,000 (2006: £16,490,000) secured on the assets of Group companies, from a syndicate of banks, is repayable in over 5 years. Interest is charged at Libor + 2.375%.
   ^The term loan of £61,590,000 has been drawn from a facility of £235,000,000 which is to be used for future acquisitions. Interest is charged on the unused balance at a rate of 0.75%.
   ^Loan notes of £295,000 (2006: £295,000) were issued in consideration of the acquisition of Fusion Insurance Services Limited. The loan notes were redeemed on 25 March 2008.
   Interest was charged at 4.5%.
   ^Loan notes of £1,987,772 (2006: £2,868,712) were issued in consideration of the acquisition of Fusion Insurance Services Limited. The loan notes can be redeemed from 10 November 2006.

   Not entirely consistent with some of the comments above. And now it seems, they are in breach of their banking covenants if the Guardian is to be believed.

   Looks like an accident waiting to happen.

   Reply
8. 
   cogito
   March 30, 2009 at 3:07 pm

   The answer to the question ‘who’s money are they taking?’ would seem to be their own employees who are not only not getting a pay rise this year but are also not being paid the bonuses they were promised.

   Meanwhile, the Independent has reported that KPMG have been brought in to help restructure the company’s debts.

   It will be interesting to see how much Cullum and his cronies have trousered in bonuses this year. If you thought last year’s accounts were bad, just wait………

   Reply
   • 
     cogito
     June 17, 2009 at 8:54 am

     Towergate succesfully renegotiated their banking covenants on terms that will make things very tough for them over the next 5 years. It will be even tougher for some of their employees who learned via the insurance press that headcount will reduce by 10% over the next year or so.

     Meanwhile, part of the deal with the bankers involved the directors putting up more of their own money which could be viewed as having to return the bonuses that they paid themselves.

     It also seems (allegedly) that the big cheese set up a risk management company with himself and his wife as directors and Towergate trading units had to cough up to pay for its services which involved a transfer of cash out of Towergate. The bankers got a whiff of this and required that the company was taken into the Towergate group thus returning the money whence it came.

     Reply
9. 
   noseycow
   June 17, 2009 at 8:59 am

   cognito – staffing has already been reduced by more than 10% – interesting your point about the risk management company – is that Callum Capital Ventures perchance?

   http://madhatters.me.uk/2009/02/20/is-it-legal-is-it-ethical-update/

   http://madhatters.me.uk/2009/03/31/restructuring-debt-or-receivership/

   Reply
   • 
     cogito
     June 23, 2009 at 11:07 am

     CCV is not the risk management arm but a similar vehicle to Towergate. Where it differs is that it doesn’t initially acquire businesses 100% but takes an equity stake instead. Useful for owners who may be nearing retirement but don’t have a succession plan.

     Reply