Saturday, 9 May 2009

Jersey Woolworths £160 Millions International pick’n’mix

The Viscount’s Department made the creditors’ accounts public for the busted Jersey Woolworths store this week – but how many of our so called elected representatives bothered to examine them?
After all, just a few weeks ago many of them were weeping crocodile tears over the fate of the ex-workers and real tears at the prospect of footing the bill (out of public funds, not their own pockets) for unpaid statutory payments in lieu of notice etc.

In fact the Viscount’s papers show that 34 ex-workers have so far shared a modest £123,000 with about 18 cases still to be resolved. So it will hardly break the Jersey economy, even if none of the money is recouped from the final administration in Jersey or the UK – wherever it takes place.

But among the many local business and other creditors (Law Officers fees £17,000, Lawyers fees to date for the ex-workers £10,000 and Jersey income tax for 2008 of £315,000 and GST of £34,000) there is one startling claim for £160 Millions plus in the name of GMAC Commercial Financing ( Brighton, UK branch) through their London Lawyers Linklaters.

Now it might seem puzzling that such a large sum could be owed from this one branch of Woolworths PLC chain of 800 stores that were wound up from November 2008 to early in 2009 even though it was among the most profitable of all when trading.

When administrators Deloittes finally brought the matter before the Jersey Courts seeking “assistance” (because they were outside of the jurisdiction of the English High Court) they were given a mildly smacked hand by the Jersey Bailiff and a belated special tri-partite arrangement was dreamed up ( the Viscount, Minister Alan Maclean for the States and Deloittes) to protect local creditors against assets being removed from the Island. Thus, the final figures have to go back to the Jersey Court for approval before residual monies go back to be put into the central UK pot for distribution there to creditors.

In fact, when Deloittes did bring the matter before the Jersey Court, there was a great reluctance by all parties to discuss financial figures on the pretext that these might be “financially sensitive” but nobody hinted that £160 millions might be involved!

Local assets certainly did not seem to reach anywhere near that figure. There was the lease on the store premises, a warehouse at Rue des Pres, the manager’s house at Gorey (currently for sale at £750,000), shares in F. W. Woolworth (J) Ltd and the “Ladybird” trademark….

Of course, the dynamic Barclay Brothers of Brecqou have already bought the “Ladybird” clothing label to market on-line through their “Shop Direct” brand (the former “Littlewoods” mail order etc) and there was presumably a “tax advantage” for Woolworths UK to have the name parked in Jersey. But who are GMAC and where is the £160 millions coming from? And, more to the point, who has it now?

According to the financial press, in February 2008 GMAC Commercial Financing ( a division of GMAC Financial Services) and Burdale Financial Ltd a member of the Bank of Ireland Group, arranged a 4 years financing facility for Woolworths Group PLC of £385 millions (£350 millions asset based lending plus £35 millions second lien loan).

Yet GMAC is a spin-off from General Motors, the very troubled US motor manufacturing giant and has a very complicated and troubled history of its own that just about sums up the enormous and interlinked financial mess that confronts the world today. And this little tale also indicates the role of not so respectable and vulnerable finance centres like Jersey.

In America GMAC is currently standing in line hoping to receive 11.5 billions dollars of government aid because it is virtually busted. The business was originally called the General Motors Acceptance Corporation a wholly owned division of GM and was involved in “auto financing, mortgage lending, insurance etc “.
In 2006 GMAC Financial Services was sold off by GM (which retained 49%) for 7 billion dollars to Cerebus Capital Management and the investors included Citigroup and Aozora Bank of Japan. By 2008 GMAC had 173 billion dollars of debt and 140 billion of assets, some of which were worthless. The same year it became a bank in order to claim 6 billion dollars in government bailout money.

Cerebus had appointed J. Ezra Merkin as non-executive Chairman of GMAC in 2006 and he was a friend and business colleague of Bernard Madoff.
Aozora Bank reported losses of 137 million dollars to fraudster Madoff this year and Merkin was removed from GMAC by order of the US government as part of an attempted deal to save the business because it is so interlinked with GM.

GMAC still advertises itself as a world-wide and “trusted source of capital for middle-market businesses” and “cross border lending solutions and asset based lending applicable in leveraged buyouts ” and the £160 millions is just peanuts in the global context.

However, Bank of Ireland too is a troubled business and it is widely reported to be now needing an injection of 7 billion euros of Irish state bailout following losses incurred on “property loans” and the IMF estimates that with AIB the injection could total 24 billions……

And so it goes on. This is the expensive world in which little Jersey has become involved in and if just one such collapse should result in liability for the public of Jersey, the result could be financial ruin for the Island.

Furthermore, fundamental, constitutional questions remain about the £160 millions and all the other sums that are currently frozen in Jersey. Where does this money rightly belong? After all, creditors in the UK must have a legitimate claim on any Jersey assets because Woolworths PLC was a UK business and according to Accountancy Age, unsecured creditors in the UK are likely to receive nothing whereas “the 6 main lending banks (including GMAC and Bank of Ireland) will receive the £335 millions owed to them.”

So by what authority has the Jersey Royal Court given preference to Jersey creditors over those in the UK and just what has happened in Guernsey and the Isle of Man? Have their courts made similar orders to protect their own creditors and are similar millions of “debt loans” salted away there too and shall UK creditors have first or second claim on any assets of this failed UK business?

The examples of the busted “Icelandic banks” in both Guernsey and the Isle of Man would seem to suggest that such complicated failures could become commonplace in the future. Are we sure that our system of regulation and supervision is up to the job?

The £1.5 millions compensation to be paid out soon to investors in failed “Alternate Insurance Services Ltd” because of the inadequacies of the JFSC in 2006 is likely to be seen as small beer in the years ahead.
Perhaps we should all contact our so called “elected representatives” just as soon as the liberation flag-waving stops?

Submitted by Thomas Wellard.

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