Mea - Where Do We Go From Here

[Albert Tatlock]

As a purley theoretical exercise lets suppose bank A advised by law Firm B loaned money to business C. In fact C had no power to borrow and B got it wrong.

 

A now sues C which says yah boo sucks, but just in case A also sues B for negligent advice.

 

B will have insurance, but maybe not enough to cover the claim in full

 

A knows it may not win against C and if it claims agianst B it will only get paid out to the level of B's insurance cover.

 

A does a deal with C, it gets back half, C is happy. A does a deal with B. It gets another 25%. A has 75%, B has problems being insured next year but is not bankrupted, C keeps some cash.

 

Everyone happy

 

The alternative is long litigation, massive fees, wasted time for management and executives an appeal, bad publicity all round/That is whay nowadays the courts and most savvy lawyers and certainly their business clienst will try to settle early on. That is why the alternative dispute resolution and mediation are thriving.

Using your theoretical exercise...an investigation by Government D (a public enquiry/government report/clear written instructions) for C would specify very clearly the process and put B out of the future process and also stop this happening to E, F, G, H I, J and K etc.

[John Wright]

I admire your faith in enquiries. Have one by all means but it won't afect how law firms get on the prefferred list nor will it change which firms on the government approved list actually get work allocated

 

The least expensive firm on the list has had no work passed its way since the list was last reviewed even although it meets all criteria for inclusion and allocation

[Tugger]

My understanding is that, in that purely hypothetical scenario, B might have included sufficient carve-outs and weasel-wording to be able to claim that what it said wasn't "wrong", as such

[Gladys]

As a purley theoretical exercise lets suppose bank A advised by law Firm B loaned money to business C. In fact C had no power to borrow and B got it wrong.

 

A now sues C which says yah boo sucks, but just in case A also sues B for negligent advice.

 

B will have insurance, but maybe not enough to cover the claim in full

 

A knows it may not win against C and if it claims agianst B it will only get paid out to the level of B's insurance cover.

 

A does a deal with C, it gets back half, C is happy. A does a deal with B. It gets another 25%. A has 75%, B has problems being insured next year but is not bankrupted, C keeps some cash.

 

Everyone happy

 

The alternative is long litigation, massive fees, wasted time for management and executives an appeal, bad publicity all round/That is whay nowadays the courts and most savvy lawyers and certainly their business clienst will try to settle early on. That is why the alternative dispute resolution and mediation are thriving.

 

 

That's a fair summary, in my view. But one of the questions is what was the matter that the lawyers were asked to opine upon? In your example, C may well have had power to borrow, but did its parent? You hear quite frequently 'well, we have a lawyer's opinion (or counsel's opinion) which says that this or that is perfectly legal.' Without knowing the question, it is difficult to be sure that the opinion addresses all aspects of the matter.

[Chinahand]

I keep raising this, but the PKF report is a very detailed, very good report into the MEA issues.

 

The Cains legal opinion on the loans can be found here.

 

As you can see they examined both the articles of the company AND the Statutory Boards Act AND the Electricity Act in coming to their opinion. Minutes of both the MEA and MCC were also examined.

The opinion states very baldly:

 

Capacity

7.4 The Company has the corporate capacity to execute, deliver and perform its obligations under the Loan Agreement.

7.5 The MEA has the capacity to execute, deliver and perfonn its obligations under the Loan Agreement.

 

and

 

Approvals and Consents

7.10 No authorisations, approvals and consents (including without limitation any exchange control consents) from any governmental or other authorities in the Isle of Man are required to be obtained by the Company or the MEA in relation to the execution and delivery by each of them of the Loan Agreement or the exercise of their rights and the performance of their obligations thereunder.

There is no evidence that money was stolen, PKF reviewed every major contract the MEA and its subsidiaries signed and found no serious irregularities.

 

Yes providing the capital assets required cost a lot of money, yes there was definitely a huge communication breakdown between government and the MEA, but the popular perception this was fat cats lining their pockets is very flawed indeed.

[Tugger]

I keep raising this, but the PKF report is a very detailed, very good report into the MEA issues.

 

The Cains legal opinion on the loans can be found here.

 

As you can see they examined both the articles of the company AND the Statutory Boards Act AND the Electricity Act in coming to their opinion. Minutes of both the MEA and MCC were also examined.

The opinion states very baldly:

 

Capacity

7.4 The Company has the corporate capacity to execute, deliver and perform its obligations under the Loan Agreement.

7.5 The MEA has the capacity to execute, deliver and perfonn its obligations under the Loan Agreement.

 

and

 

Approvals and Consents

7.10 No authorisations, approvals and consents (including without limitation any exchange control consents) from any governmental or other authorities in the Isle of Man are required to be obtained by the Company or the MEA in relation to the execution and delivery by each of them of the Loan Agreement or the exercise of their rights and the performance of their obligations thereunder.

There is no evidence that money was stolen, PKF reviewed every major contract the MEA and its subsidiaries signed and found no serious irregularities.

 

Yes providing the capital assets required cost a lot of money, yes there was definitely a huge communication breakdown between government and the MEA, but the popular perception this was fat cats lining their pockets is very flawed indeed.

 

There's not really any evidence one way or the other on that is there?

 

Even without the lining of pockets, it seems to me that there was a reckless disregard for the public's money among the senior management of the MEA

[Chinahand]

I keep raising this, but the PKF report is a very detailed, very good report into the MEA issues.... PKF reviewed every major contract the MEA and its subsidiaries signed and found no serious irregularities.

 

There's not really any evidence one way or the other on that is there?

 

Even without the lining of pockets, it seems to me that there was a reckless disregard for the public's money among the senior management of the MEA

 

Having one of the premier forensic accounting companies examine every major contract and alot of the minor ones etc shows there is very little evidence that there was a disregard of the public's money. They have very little criticism of the MEA's internal audit systems.

[Gladys]

Thanks Chinahand, that clarifies the uncertainty I have always had about the deal. But you have to read the assumptions also, including 6.4 and 6.15, which qualify the opinion.

 

I have experience of a statutory corporation elsewhere and one of the matters which, under its incorporating statute, required ministerial consent was the giving of guarantees of any third party obligations. That provision seems to have been missing from the MEA's constitution. So I would agree, it would seem to be a break down in communication between Govt and the MEA. In that situation both parties have to engender a climate of trust and openness, with each taking responsibility for its part in the relationship and understanding the boundaries; the statutory corporation for the commercial operation within its statutory boundaries and the Govt as proprietorial guardian of the entity.

 

As for making off with millions, I don't think so. Perhaps more thought should have been given to the effect of guaranteeing the loans (despite the legal niceties, who could ultimately pick up the tab) and a dialogue opened; but there has to be a question as to why it was felt that such a dialogue could not be opened.

 

All surmising, but I truly have seen this kind of scenario before, different circumstances and outcome, but the same factors apply.

[Theodolite]

As a purley theoretical exercise lets suppose bank A advised by law Firm B loaned money to business C. In fact C had no power to borrow and B got it wrong.

 

A now sues C which says yah boo sucks, but just in case A also sues B for negligent advice.

 

B will have insurance, but maybe not enough to cover the claim in full

 

A knows it may not win against C and if it claims agianst B it will only get paid out to the level of B's insurance cover.

 

A does a deal with C, it gets back half, C is happy. A does a deal with B. It gets another 25%. A has 75%, B has problems being insured next year but is not bankrupted, C keeps some cash.

 

Everyone happy

 

The alternative is long litigation, massive fees, wasted time for management and executives an appeal, bad publicity all round/That is whay nowadays the courts and most savvy lawyers and certainly their business clienst will try to settle early on. That is why the alternative dispute resolution and mediation are thriving.

 

I see the moves for out of court settlement have been reported.

[copycat]

Per MR site:-

The Manx Electricity Authority has admitted £120 million in loans it took out two years ago was unlawful.

 

It means a long and complex legal case between the MEA and branches of government, which could have cost the tax payer millions, won't now be necessary.

 

Tynwald will be asked next week to grant retrospective permission for the loans, after the authority admitted it should have consulted the Treasury.

 

But Chief Minister Tony Brown has said payments to former directors haven’t been cleared, leaving the way open for a full investigation.

 

So, if they weren't legal then the interest charged on them by Barclays can't have been legal so its only fair isn't it that Barclays take some of the hit for not making certain that what they were doing was proper by foregoing the interest until the loans are ratified?

Alternatively if the loans were ultra vires (?) then who was responsible - surely the directors at the tme so shouldn't they be surcharged with the interest costs to date?

[P.K.]

Interesting. The terms of the loan were presumably negotiated and ratified by the MEA board. If the Gov feels it could have got a better deal (like Military Intelligence i.e. a contradiction in terms) then it is highly possible that the MEA board could be sued for professional misconduct. Which in my experience would be completely counter-productive because directors of companies invariably have "teflon shoulders" clauses in their contracts that basically say if they get sued it's the company that pays up on their behalf i.e. the MEA. So if they screw up big time (or rather get found out!) they NEVER have to suffer the quincequonces.

 

Nice work if you can get it. Now where's my trout and apron???????

[localyokel]

If the Gov feels it could have got a better deal (like Military Intelligence i.e. a contradiction in terms) then it is highly possible that the MEA board could be sued for professional misconduct. Which in my experience would be completely counter-productive because directors of companies invariably have "teflon shoulders" clauses in their contracts that basically say if they get sued it's the company that pays up on their behalf i.e. the MEA. So if they screw up big time (or rather get found out!) they NEVER have to suffer the quincequonces.

 

I'm not sure members of government boards have limited liability (like company directors). Maybe a test case would be interesting.

[Tugger]

Interesting. The terms of the loan were presumably negotiated and ratified by the MEA board. If the Gov feels it could have got a better deal (like Military Intelligence i.e. a contradiction in terms) then it is highly possible that the MEA board could be sued for professional misconduct. Which in my experience would be completely counter-productive because directors of companies invariably have "teflon shoulders" clauses in their contracts that basically say if they get sued it's the company that pays up on their behalf i.e. the MEA. So if they screw up big time (or rather get found out!) they NEVER have to suffer the quincequonces.

 

Nice work if you can get it. Now where's my trout and apron???????

 

 

That simply isn't the case. Section 151 of the Companies Act 1931 would make such a clause void. There are a couple of exceptions (companies are allowed to purchase insurance that covers directors' negligence, and they are allowed to cover a director's costs when the director is subsequently cleared of negligence), but it is nothing like as broad as you are making out.

[Gladys]

Indeed, directors do not have limited liaiblity, the company does, but not the directors in their personal capacity. This is by far the best outcome for all concerned, and the most pragmatic. If the borrowing is ratified, then the interest paid will also become legal.

[Motivator]

The sad fact is, that the Island is so rife with dishonesty (and I'm not just talking about this whole MEA thing), that it would work out cheaper, and save us all millions and millions of pounds each year if we didn't have any investigations into any allegations of corruptness about anything! Certainly from a financial standpoint, the answer to the question "Are any of these (almost annual) investigations worth it?" The answer is a resounding "No".

 

There is only one economically viable way to deal with anything like this, and that is to make sure no one person is ever put in a position where corruption could even take place. And that could be done very easily for very little public money, and very little re-organisation. You simply have systems in place which mean no one figurehead would ever have anything to gain in the decisions to be made. And how do you do that? Again it's simple. Decisions should never be made by a CEO or Managing Director. They should stick to what their job titles suggest - day-to-day management of the company. If things need to be sold, bought, reshuffled, invested, built, etc. by the MEA, it should be a decision made by a panel made up of four senior AND junior employees, and five elected MHK's selected for the task completely at random.

 

All these 'post-problem' investigations are just extremely expensive locks put on a stable door after the horse has bolted. Let's stop the horse from being able to bolt in the first place!

 

Richard

x