A True and Factual Account of Fraud and Corruption
The law firm Herbert Smith Freehills has a lengthy association with Yell/hibu, having provided advice on multiple key events in the company’s history.
One of its partners, Ben Ward, advised on the purchases of TPI and TransWestern in the mid-2000's which saddled the group with very high levels of debt. Both Ben Ward and another HSF partner, Kevin Pullen, also “advised Yell on its 2009 £4 billion debt restructuring, including its £660 million placing and open offer; and its 2013 £2.3 billion debt and corporate restructuring”, according to their career profiles.
HSF also appear on the Yell ‘2009 Lenders list’ in exhibit B of The Eastern New York Bankruptcy Court Case Nos. 14-70323 (REG) the contact details of Ben Ward and Kevin Pullen shown, although the amount of debt they held (or were responsible for) is not listed.
The price of secondary debt had fallen to about 30% of its face value when restructuring discussions commenced in May 2012, to which HSF (as Yell’s lawyers) would have been party. All the restructuring options under discussion then were also intended to benefit the Lenders in particular, or the Lenders would never have agreed to them. So, it is reasonable to conclude that HSF had an interest in the outcome of the restructuring above those of their professional capacity as advisors to hibu PLC.
Indeed, HSF were advising the directors, while also in a position to apply pressure on them as Lenders.
When hibu shares were suspended on 25 July 2013, hSG pressed for an EGM to challenge the outcome of the restructuring discussions, and obtained enough support for hibu to announce on 23 October 2013 that one would be convened. hSG had requested that resolutions be included that would allow 10 shareholder representatives to be added to the hibu Board if elected.
On the same day, 23 October 2013, HSF sent threatening letters to each of the shareholders who were up for election as directors of hibu, warning that “Absent a successful restructuring…You should not under-estimate the adverse reaction which you will face from creditors…” In that letter, they also asked that further details of the proposed directors be sent to Ben Ward at HSF.
On 6 November 2013, a circular from hibu to shareholders then announced that the EGM was due to take place on 4 December 2013. But it contained a further threat, this time to all shareholders, that hibu plc would be put in administration if the hSG-nominated directors were likely to be elected.
On 27 November 2013, just one week before the EGM, the Board of Directors then carried out their threat and put hibu plc into administration. Although the shareholder representatives were then legitimately voted in at the ensuing EGM, the administrators from Deloitte refused to recognise them.
The selected restructuring option therefore went through unchallenged and, under its terms, Lenders had their debt holdings written down by 35% from £2.3 billion to £1.5 billion but assumed 100% ownership of the company whereas shareholders were eliminated completely.
Every £1000 of debt (face value) had been worth about £300 prior to the restructuring on the secondary debt market. However, after the restructuring went through, with the company in effect re-financed, it would have had a face value of £650 (i.e 1.5/2.3 * £1000) in the newly ‘restructured’ hibu and been worth something close to that figure.
The inference of this is that the value of the debt holding would probably have doubled as a result of the restructuring and explains why it would have been so attractive to many ‘vulture funds’ which hSG believes bought large amounts of discounted debt to become the ultimate owners of the company.
HSF had already earned substantial fees for providing legal advice to hibu and dealing with all communications to shareholders. Any debt held by HSF also stood to increase significantly in value mitigating the loss which they would have incurred as ‘Lenders’ under the 2009 facility.
hSG believes that there was therefore a conflict of interest in the actions taken by Herbert Smith Freehills. Their unwarranted threats towards shareholders were unprofessional and, in our view, completely unacceptable from a legal firm of HSF’s standing. We feel that they should be carefully investigated, and that paperwork relating to the minutes of meetings etc, will be more readily available at their premises.
The series of threatening letters highlights the conflict of interest inherent in ostensibly representing the directors of hibu PLC, while privately being a hibu debt holder. It begs the question, on behalf of which creditor(s) the series of ‘threatening’ letters was really being written, given that two partners at HSF were shown on the Yell 2009 Lenders list.