A True and Factual Account of Fraud and Corruption
This section contains a number of examples of the Directors using their privileged positions and insider knowledge to take actions that benefited themselves financially to the detriment of their shareholders. In our contention they did this by:
· buying debt knowing that it would return them a profit when the company formally passed to the Lenders
· exchanging their share options for cash incentive plans because they knew they would not meet their performance targets and that shares would be worthless
· transferring their contracts on the quiet from the parent company to a subsidiary because they knew that the parent company would be put into administration
· paying themselves grossly excessive remuneration (without shareholder approval)
Executive Share Options
· 10 March 2011 RNS - Pocock was awarded 12.16 million share options and Bates 8.27 million, at an exercise price of zero pence.
· 1 July 2011 RNS - Pocock was awarded 18.17 million share options and Bates 12.35 million, at an exercise price of zero pence.
Having been in their roles for little more than 6 months, during the course of which the share price had lost nearly 60% of its value, Pocock had been awarded 30.3 million share options and Bates 20.6 million, equivalent to 2.5% of the company. The awards were clearly excessive.
Notably, the chairman of the remuneration committee and his predecessor resigned in February 2011, just before the share options were awarded, without giving reasons for their departure.
Replacing share options with incentive plan
· 8 October 2012 RNS – entitled just ‘Update’.
The RNS says that Pocock's 33.3 million share options and Bates 22.6 million share options were "surrendered for nil consideration".
But it adds -"Following the surrender of the above share options, neither John Michael Pocock nor Antony Bates hold any options over hibu plc ordinary shares. A deferred cash retention and incentive plan has been introduced for the executive directors and certain senior managers."
There were only two executive directors (Mike Pocock and Tony Bates) and two of the most senior managers were Bob Gregerson and Mark Payne). So, it is a reasonable conclusion that these four people were being incentivised for a successful ‘restructuring’ despite being the main operational architects of the company’s demise.
Furthermore, on 19 September 2012, hibu had already stated that hibu shares might have ‘little or no value’; and neither Pocock nor Bates could have qualified for their share options due to the failure to meet the performance qualifications. So, there was actually nothing for them to ‘surrender’.
Neither the names of the beneficiaries nor the terms of the incentive plan were ever revealed.
Directors moving their employment contracts to a subsidiary
29 October 2012 - Mike Pocock and Anthony Bates signed contracts transferring their employment from hibu to Yell Limited (which would be renamed hibu (UK) Limited).
The change of employer was not announced to the market. Had shareholders been alerted to this action, questions would have been asked about the reasons for the changes to their contractual terms which ensured they would continue to be paid when hibu plc was put into administration about one year later.
Companies Act 2006 Section 188
Directors’ long-term service contracts: requirement of members’ approval
(1) This section applies to provision under which the guaranteed term of a director’s employment—(a)with the company of which he is a director, or(b)where he is the director of a holding company, within the group consisting of that company and its subsidiaries, is, or may be, longer than two years
Early payment of bonuses to Executives and staff
· 25 April 2013 – from The Independent
“Hibu, the owner of Yellow Pages, has paid bonuses two months early to 2,500 staff even though the debt-laden company missed payments on £2bn-worth of loans in February and March and breached bank covenants.
The bonuses were agreed at the start of this month, almost immediately after Hibu's financial year ended on 31 March. Bonuses were previously paid in June.
The chief executive Mike Pocock is understood to have received a payout. His last declared bonus, covering 2011 but announced a year late in the 2012 annual report, was worth £937,000.”
· Yell’s 2012 Annual Report
“The Board was highly satisfied with the strategic plan delivered to them, and the Committee was extremely impressed with the quality of the plan and its ability to turnaround the Group. As a result, it was determined that a bonus payment of 150% of salary was appropriate.” 150% was the maximum bonus payable at the time.
· 9 October 2012 - The Telegraph reported
“The change to Hibu’s bonus scheme marks the second alteration to the pay-outs for the failing company’s directors in recent months. Its last annual report also revealed a change in the terms of their remuneration packages, so that they are guaranteed larger salaries and they are less reliant on the company’s performance.”
hSG believes that the Directors abused their positions of responsibility to shareholders by acting in their own best interests in relation to remuneration and bonuses, rather than taking steps to keep the business afloat.
Jim McCusker’s lawsuit stated, “Indicative of the true motivation of Mr. Pocock, Mr. Bates and Mr. Gregerson, was Mr. Gregerson’s admission that they were pulling forward the payment of management bonuses “to avoid questions from a new regime.”
They extracted the maximum amount of money from the company, knowing that in July 2013 they would announce the suspension of trading of shares and their intention to cede control to the Lenders.
The Independent article highlighted the blatant way in which the Directors put their own interests above all others by concluding with the following observation - “The ailing company warned earlier this year that it would not make an interest payment of £49m, due in February, and a £25m payment due last month.”
70% pay hike for Directors and Senior Management in 2012/2013
· 24/25 January 2014 - from The Independent and The Times
The Independent - “Accounts for Yellow Pages Limited, the most important UK subsidiary of the collapsed parent company Hibu plc, show “key management” got £6.5m in salary, short-term benefits and shares in the year to March 2013 – up from £3.8m a year earlier.
The Times - “Wigley’s compensation rose from £264,000 to almost £400,000, which includes an extra £10,000 in car expenses to reflect the extra time he was spending at the company after the departure of Mike Pocock…”
It is important to note that these remuneration increases for the Board and Senior Management came at the same time as they were telling shareholders that the shares were worthless and that there was no money available even for a token payment to them when ownership of the company was being transferred to the Lenders.
1.6 Directors secure own future with Lenders
· 25 July 2013 RNS – Restructuring Update
Mike Pocock stated, “The current Board members will leave their positions and a new board of directors of the lender-owned company will be constituted and appointed. The new board will include hibu's current executive directors and new directors representing the interests of the Lenders.”
hSG contends that the Directors always had this goal in sight, as they served the Lenders during the restructuring process, and then stood to benefit further by joining the new Board in the Lenders’ company.
Notably the 8 October RNS, which put the executives into a new cash retention and incentive plan, came one month after shareholder wipe-out had been referred to in the Sunday Times. From this, hSG deduce that the Directors were surely being incentivised to stay on and push through a plan which they knew would wipe out shareholders.