Friday, 20 October 2017
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freeport11Having just recently put Freeport, along with its main shareholder CEREP UK Investment D GP Ltd.,  into voluntary liquidation while owing HM Revenue & Customs over £26.6million, it's nice to see that Freeport's former company directors are still taking care of what really matters: their own interests, along with the interests of The Carlyle Group - Freeport's owner before it went bust.

Just before leaving the Freeport sinking ship, the directors set up a ‘management’ company called Freeport Retail Limited to oversee the administration of all the Freeport/Carlyle property and retail interests in Europe.

This was back in 2011 when the directors, Roberts Hodges, Iestyn Roberts and a few others were so upbeat about Freeports' future prospects. This also was about the time that the company secured two more mortgages, one for €94 million.

And then it all started to go downhill, if it wasn't already in the process of doing so. The directors and other company officers all resigned several months later. The auditors, Baker Tilly also were shown the door, or resigned.

This also was around time several articles in appeared exposing the fact that Freeport's accounts simply didn't add up - literally in this case.

Furthermore, there was clear evidence that Baker Tilly, in particular the accountant John Bennett who had produced the accounts for both Freeport and its main shareholder (CEREP UK Investment), had colluded with the directors to produce accounts that were less than honest. bakertilly

In fact, we could even state the accounts were deliberately compiled to mislead anyone reading them. Is this what we should expect from a company that is a member of the esteemed Institute of the Chartered Accountants of England and Wales (ICAEW)?

The last accounts filed by both Freeport and its main shareholder were the 2012 version. Shortly after that it seems clear that the directors (and Baker Tilly?) seemed to have decided to cover their tracks.

This may have been after my complaint to the ICAEW with regards to the undisputable errors and irregularities in these accounts. Unfortunately, the ICAEW's response was to contact Freeport and alert its directors and accountants that someone had spotted what they had been up to.

The ICAEW's policy, we can safely assume, is to give the company's directors and accountants as much time as possible to correct their errors and cover their tracks. Is this what they call public service?

icaewIt should be repeated that Freeport's owners voluntarily decided to put the company and its main shareholder into liquidation. As already stated, this was just after the company had secured €94 million in extra finance, which interestingly did not appear on the company's last published accounts.

It would seem that the company's officers decided to put the companies into liquidation to avoid having to answer embarrassing questions. Much easier voluntarily to go belly-up and produce two Statement of Affairs than keep trading and have to file accounts which have to disclose much more information.

The company and its accountants clearly had put themselves into an almost impossible situation; any material change in the company's position would have shown up on the balance sheet€“ immediately raising some interesting questions.

I argued that in fact it would be impossible to correct the accounts by the normal procedure of staying in business. Hence I was not surprised when the company went belly-up.

But the two Statement of Affairs produced by PcW still raised some questions.

The first one was how a liability to HMRC of approximately £26 million suddenly appeared when there had been no mention of it in the last accounts.

The second was why none of the outstanding mortgages, especially the last one of €94,000,000, were not in the accounts.

The last question was ‘who owns the land on which the Alcochete shopping mall is built?’ as neither Freeport nor its shareholder CEREP UK Investment D GP Ltd have any material assets at all.

Despite deciding to put these last two companies into liquidation owing the British taxpayer nearly £27million, it's nice to see that Freeport's former company officers are still looking after themselves.

Freeport Retail Limited's most recent accounts (June 2014) show dividend payments to the directors and CEREP Investment I Sarl of £117,008.

This last company is registered in Luxembourg, is a shareholder of Freeport Retail Limited and has appointed two directors to the board. Freeport Retail Limited also makes sales to CEREP Investement  I Sarl, of £739,736 in 2014.

On the plus side, it's nice to see that the company officers have at least decided to make a contribution to the British economy as the corporation tax liability was £590.

Despite putting both Freeport and CEREP UK Investment D GP Ltd into voluntary liquidation, it seems it is still business as usual for Freeport and its ultimate owners, the American private equity firm The Carlyle Group. In October last year a new director was appointed to the board:  Salman Najam.
Najam works for the Carlyle Group (along with Matthew Lo Russo, Freeport's last director before the company was dissolved). Before moving to Carlyle, Najam was employed by accountants Ernest & Young and hopefully he will make sure that all future Freeport and CEREP accounts actually add up and make sense.

We should remember that Robert Hodges, the director who signed off the last Freeport accounts which were filed at Companies House (2012) clearly failed to notice that the figures didn't actually add up, among other errors and irregularities.

But perhaps we should not be too hard on Robert Hodges. At the time he signed off the accounts he had interests in some thirty or so companies either as a director (usually) or as a company secretary. Clearly he was unable to keep an eye on all of them.

Najam should not have this trouble; at the time of writing he had interest in just fourteen or so companies (less than half of Hodges' total) and we expect perfection from him.

Most, if not all of the companies with which he is associated are part of Carlyle's European retail property interests under Carlyle European Real Estate Partners.carlyle

These companies form part of investment funds in which investors can hope to make profits from rising property prices and rents mindful of Carlyle's motto, ‘Invest wisely, create value.’

William Conway, one of Carlyle's three CEOs, has defended Carlyle’s business practices by stating "We make money for our investors."

He could have added, “by ripping off tax-payers” as Freeport owes nearly £27 million to the UK Treasury, and “by using underhand and morally-dubious business practices.”

One of the companies with which Salnan Najam is associated is CEREP Colmore Plaza GP Ltd. The figures for this worthless company are meaningless: £5 in the bank; £7 worth of assets which includes the amount in the bank; and liabilities of £29,673. Net worth?  An overdrawn balance sheet of £29,666. Question: What's the point?

Looking at many of these CEREP companies we find the same situation: worthless companies that often go into liquidation owing creditors money.

Another company with which Najam is associated is CEREP Bristol GP Ltd. Assets £371, offset by liabilities of £6,590 making the balance sheet overdrawn to £6,219.

Interestingly, if you look at the list of previous company officers for this company you will see some former Freeport directors, including the ubiquitous and the innumerate Robert Hodges.

These companies exist to help push up prices of both residential and commercial properties and to make mortgages and rents more expensive, thus benefiting Carlyle's investors: the banks and other large financial institutions.

I already showed in a previous article in the how most Portugal Capital’s shareholders are banks, so we can safely assume this about Carlyle.

Up until March 2013, the minimum you needed to invest in Carlyle was between $5 and $20 million. However, in the month just mentioned (March 2013), Carlyle announced that it was reducing this limit to just $50,000, just as other private-equity companies such as KKR & Co and Blackstone Group were doing. The fact that these companies are now opening themselves up to smaller investors is a big concern – think ‘South Sea Bubble.’

We should also ask ourselves how and why Freeport, with an overdrawn balance sheet of around £4 million, acquired mortgages of €94,000,000.

One final question, why was PriceWaterhouseCoopers suddenly given the job as ‘liquidator’ when there is nothing to liquidate as both companies had a combined deficit of around £19 million with £27 million owed to HMRC by Freeport according to its Statement of Affairs. What's PwCs interest and who are they charging?pwcminilogo

Despite numerous emails and some phone calls to PwC, it has failed to answer any of these questions, choosing to worry about who I am and my interest is. Clearly there seems little room in this modern world for any concerned person to ask legitimate questions. While we appreciate that there must be things which remain private in normal business relations, these rights must be greatly reduced where a genuine issue of public interest arises.

Neither Zelf Hussain or R.N. Lewis (the two accountants who produced the two Statement of Affairs) have contacted me so it was down to PwC’s Christopher Harding to answer my legitimate questions, which he has failed to do.

Harding didn't want his name mentioned in this article, but I do not have email addresses for Hussain or Lewis here is his contact details if you have questions about Freeport's current situation

The reason why PcW may be so reluctant to answer questions is because of sensitivity to several allegations that have come to light about its direct involvement in assisting major companies to avoid tax using  tax havens like Luxembourg.

freeport2According to Ronan Palan, Professor of International Political Economy at City University London and author of a number of books on globalisation, "It's... an open secret that among tax experts [like PcW] that Luxembourg is among the leading tax havens in the world."

Freeport's ultimate owner in Europe was CEREP Investment I Sarl, a company registered in Luxembourg.  

When I first contacted the then CEO of Freeport Iestyn Roberts back in2012, he complained about muck-raking journalists.

All the muck since then has been produced by Freeport without any help from the rest of us, including inaccurate and dubious accounts signed by the directors and produced by clearly incompetent accounts (Baker Tilly in Milton Keynes); questionable business practices including writing off millions of pounds worth of assets and raising mortgages for undefined purposes; undisclosed millions owing to HMRC and attempting to hide it all by voluntarily going into liquidation, and that’s the abridged version.