The companies behind the Freeport shopping centre built near Lisbon that featured in an earlier José Sócrates corruption inquiry have gone into liquidation owing HMRC £26 million and exposing a long list mortgages that have never appeared on their balance sheets.
Accountancy company PriceWaterhouseCoopers has been appointed to handle the Freeport and CEREP UK Investment D GP Ltd winding up.
PWC say the money owed to HMRC is 'disputed' and has been so for two years though the firm has no explanation as to why this amount has never appeared in the accounts.
There are seven mortgages outstanding, two of which were arranged in September 2011 - one for €94 million - in preparation for Freeport’s owners ditching the now bust business, having removed cash via mortgages which are unlikely ever to be repaid.
The liquidation notice is dated 26th November 2014 as Freeport's American owners decided it was time to pull the plug, having sucked the company dry and leaving a trail of debt to the detriment of the public purse.
Over the last few months, the Freeport board started to disband. It went from four directors; I. John Roberts, Eric Sasson, Robert Hodges and Hafiz Ali - to just one, the American Matthew Lo Russo who was appointed on 2 September 2013 and who works for the American private equity company The Carlyle Group.
The Company secretary Ian Brownstein resigned at the same time as the first three directors in September 2013, while Hafiz Ali resigned in September this year – leaving just Lo Russo in charge.
Conveniently, Freeport's auditors, Baker Tilly resigned or were sacked in July 2014 and PriceWaterhouseCoopers now has been appointed as liquidator, an interesting task as there are no assets left to liquidate.
As part of this well planned scam, and one that Carlyle Group is well versed in, Freeport’s only shareholder, CEREP UK Investment D GP Ltd has also been put into liquidation.
Readers who have been following the Freeport articles about these companies in the Algarve Daily News (see below for links) will recall that CEREP UK Investment D GP Ltd owed Freeport approximately £14 million and had no assets apart from around £1,000 in the bank.
Questions were asked on this and other Freeport matters of the Institute of Chartered Accountants of England and Wales (ICAEW) but no satisfactory response ever was received.
It is likely that the inquires lodged at the ICAEW and at Companies House may well have prompted the directors to take some form of action to cover their backs.
This could also be the same with regards to the then auditors, Baker Tilly. David Moody, the main man at the ICAEW seemed more concerned about the tone of the questioning than about seriously dealing with the issues raised and singularly failed to address the serious issues surrounding the scam that was leading to Freeport’s liquidation, owing millions and with millions borrowed and withdrawn mainly to the benefit of Carlyle Group.
Queries sent to Helen Howard at the Institute of Chartered Accountants of England and Wales were passed to David Moody after several complaints. After a suspiciously long delay Howard finally replied that David Moody did not think that there should be any disciplinary actions.
The ICAEW rarely does take any action until the horse has left the stable; this horse not only had bolted from the stables but already was in the next county.
While Moody was taking his time to reach his conclusions and respond, Freeport's directors, company officers and Freeport's accountants Baker Tilly were covering their backs.
It then was suggested to David Moody that Baker Tilly (or at least its Milton Keynes office which prepared the accounts) should be investigated and the working papers to Freeport's accounts reviewed.
These working papers would reveal whether errors found in the accounts were immaterial, or were covering up deeper issues such as a deliberate, planned and sustained money-laundering operation.
The Freeport accounts showed serious flaws in 2012 with a mathmatecial error of over £60,000. A question was raised at the time that John Bennet, Baker Tilley’s senior auditor working on the Freeport accounts, had treated CEREP UKD GP Ltd's £14 million loan to Freeport as a long-term creditor, while showing it as a short-term debtor on Freeport's accounts.
Either Bennet had forgotten a basic accountancy principle of consistency or he chose to ignore it to make Freeport's balance sheet look healthier.
The problem remained as to how CEREP UK Investment D GP Ltd was going to meet its £14 million liability to Freeport when it had no material assets. The company was essentially a legal IOU with no ability to pay.
The directors then chose to take actions to mask their activities. First they refused to publish Freeport's 2013 accounts. As Freeport is an unlimited company the directors do have the right to do this. But they did published the 2011 and 2012 accounts, so why the change in policy?
Freeport's shareholding company, CEREP UK Investment D GP Ltd, did have to publish its accounts. For the years ended 2011 and 2012 these were published on time, but as soon as articles about the company started appearing in the Algarve Daily News and the fact that the directors were now receiving inquires from both Companies House and the ICAEW (due to complaints) about irregularities in the accounts, the directors started acting differently.
Now the company abruptly has filed for voluntary liquidation and all that is left are the two statements of affairs for Freeport and CEREP UK Investment D GP Ltd.
It was only three years ago in November 2011 that the then CEO Iestyn Roberts, and the then Managing Director Robert Hodges were so upbeat at the company's future prospects after the refinancing of Freeport. What possibly could go wrong?
The statement of affairs reveals that Freeport had assets of debtors of £20,643, ‘investments’ of £125,007 and around £41,225 in the bank. CLICK HERE to read the Insolvency Notices.
However, on the liabilities side (unsecured preferential claims) there were two amounts totalling approximately £60,000 to two of its associated companies; Freeport [Nominee 4] Ltd and Freeport [Nominee 3] Ltd, and a further £125,003 to Freeport Leisure Ltd, plus £100 to Baker Tilly, its former accountants.
The most shocking figure is the £26 million that Freeport owes HM Revenue & Customs in an “ongoing tribunal dispute going back at least two years,” yet never appearing in the accounts as required by company law if an ongoing dispute may materially affect the company, which this one certainly does.
There has been no mention of this amount in the accounts, nor did Hodges or Roberts think is necessary to mention a £26 million potential liability in their press conferences in November 2011 when they spoke about the company's refinancing and bright future.
The statement of affairs fails to mention who now owns the land on which the Alcochete shopping centre is built, land which once belonged to the people of Portugal, nor does it list owners of the other assets which originally were on the Freeport and CEREP UK Investment D GP Ltd accounts.
According to the Companies House website, Freeport has seven outstanding mortgages, the last one to be registered was for €94,000,000, yet none of these mortgages were shown on the balance sheet and they are not on the statement of affairs.
Given the recent arrest of one of Portugal's former prime ministers José Sócrates (below left) on suspected money-laundering and corruption charges, perhaps similar questions now should be asked of Freeport's company officers: where is the money?
Freeport is owned (or was, as its now in liquidation) by The Carlyle Group, a global private equity firm.
One of Carlyle's main shareholders is David Rubenstein whose net worth is reputed to be over $3.billion and he is one of several American billionaires who have pledged to give away half their wealth to charitable causes.
If David Rubenstein was really serious about giving some of his wealth away he could write a cheque to HM Revenue & Customs for at least $40 million to cover Freeport's debt and ensure that the land on which the Alcochete shopping centre has been built is returned to the people of Portugal to whom it belongs.
Rubenstein made some of his money in the early 1980s by exploiting a tax loophole designed to help Alaskan (Eskimo) companies. Rubenstein's then partner and co-founder of Carlyle Stephen Norris called the whole thing the ‘Great Eskimo Tax Scam,’ commonly known as theft. The same sentiment can be expressed towards the whole Freeport fiasco in Portugal: Grand Land Theft.
José Sócrates was the man who started all of this when in a highly controversial 2002 decision, at the same time as corrupt cash payments to 'person or persons unknown,' he gave Freeport permission to build the Alcochete shopping centre on protected land while acting rather incongruously as the Minister for the Environment.
Freeport's self-generated liquidation and its outstanding liability to the British Treasury of over £26 million needs properly to be investigated but the level of professionalism shown by the accountants and regulators so far does not give great hope.
Does Portugal need another expensive whitewash?
Many in Portugal would be happy if the Alcochete land was returned to public ownership and this useless, worthless company and its officers asked to find employment in another country.
Carlyle Group http://www.informationclearinghouse.info/article3995.htm
See also the video of Charles Smith of Smith & Pedro discussing Socrates' involvement in cash payments: