Thursday, October 12, 2006

LibDems Stare Bankruptcy in the Face

Page 2 of The Times makes interesting reading today. A High Court Judge ruled yesterday that 5th Avenue Partners, the company owned by jailed fraudster Michael Brown and which gave the LibDems £2.4 million, had never actually traded. Surely this totally blows apart the contention put about by the LibDems that they had done their due diligance properly and had obeyed Electoral Commission rules. It really does seem to me that they are up a creek without a paddle on this and would at least do themselves some good if they admitted they had made the most horrendous mistake.

It's quite clear they haven't got the money to pay it back, so the interesting question now is this: will former Manchester United chairman Martin Edwards and his three colleagues now take this action further, and if so how? Is it possible they could issue a winding up order against the LibDems effectively rendering them bankrupt? My knowledge of law in this area is not even sketchy so perhaps any lawyers readig this might offer us - and indeed the LibDems - some free advice...

53 comments:

Rigger Mortice said...

'offer us ..some free advice..'

last one out of cowley street,turn off the lights

wonkotsane said...

If the money wasn't 5th Avenue's to give then it has to be paid back to the rightful owners of the money. If it's a fraudulent transaction it's proceeds of crime. The Lib Dums could sue 5th Avenue if they have a contract, the rightful owners of the money can sue the Lib Dums for its return or the courts could confiscate it as proceeds of crime.

If the Lib Dums can't pay it back they are insolvent and a creditor then has the right to petition for a winding-up order to be made against them or to be put into administration. If the Lib Dums have any assets these would be realised, the receiver or administrator will cream most of the proceeds off and a dividend will be paid.

That's for a normal company but a political party is probably different. For instance, I don't think you'd be able to sell the party as a going concern or sell the brand like you would with a normal company. Then again, even if you could, who would want it?

Colin D. said...

Is the financial state of the Libs so much different from the other two. ie. Tory & liebour??

Anonymous said...

DiligEnce, Iain, diligEnce

john said...

I did check this out some time ago and 5th Avenue did have at least one transaction recorded at companies house. It did, therefore, trade.

Ronners said...

Financially and intellectually bankrupt it might be said. And soon to be electorally bankrupt to boot! Ah I knew there would be a reason to get out of bed today!

Peter Hitchens said...

Iain didnt your parents teach you that it is wrong to gloat?
Fun but wrong, time to break out another pot of glee.

Colin said...

Iain,

You put the words 'lawyers' and 'free advice' in the same sentence. I think you know better than that!

Is there a precedent for a political party being forced into bankruptcy? And if so, what happens then? The fact is that all three parties are in a financial pickle, having grossly overspent in the last election. The scandal about the loans is symptomatic of how desperate the parties are to attract cash from their supporters. Is it not time for a national limit to be imposed on party spending in an election? (as is the case on local spending by the candidates in each constituency.) (And, by the way, I am emphatically NOT in favour of state funding for political parties. they must and should be funded by their members alone.)

mr plod said...

Dream on Tory boy.

Stephen Newton said...

But aren't all three parties on the verge? Interestngly I read somewhere that Labour members have no liability, but this suggests Lib Dems do.

Kevin Davis said...

From what I have been hearing their constitution means that each member is liable for the cost of this. It basically maens that if a winding up order is pursued then each Lib Dem party member would have to chip in about £50!

That'll teach them!

Anonymous said...

This ain't gonna 'appen. Old Featherbrain would stump up some dosh!

Mark Williams said...

I am not a lawyer, but the law is quite clear. The relevant legislation is here (sections 54-58):

http://www.opsi.gov.uk/acts/acts2000/00041--k.htm#54

First of all if any party receives a donation from an impermissible donor they have to return it within 30 days otherwise the party and the party treasuerer are guilty of on offence (s56(3)(a) PPERA 2000). No excuses, "good faith" etc. They should have been more careful.

Secondly, and independently from criminal proceedings, the Electoral Commission may apply to a magistrates' court for the forfeiture of any donation that is not repaid (s58). They are not obliged to do so, but if even if they do not do so the party would be guilty of the criminal offence.

Regarding bankruptcy proceedings, the Lib Dems would owe the money under the PPERA to the registered donor (5thAP) not to the investors. Companies House has started proceedings to strike 5thAP and 5thAP(UK) from the Register of Companies. The investors would have to object to those proceedings, sue for the return of the (allegedly) stolen money and then appoint a receiver over the company(-ies) to get their money back.

If the companies are dissolved the Lib Dems still have to hand over the donation to the Electoral Commission.

javelin said...

I thought Labour was bankrupt as well?

Have you and Guido decided to carve up the political carcasses in a blogging duopoly?

Anonymous said...

I got bored of this piece as soon as I read the words: 'page 2 of the Times'...

My god, these twats love slogging the dead horse dont they. If other Papers started getting interested (rather than the Times and excitable bloggers) then I might think that what the Times keep saying had any worth whatsoever...

AnyonebutBlair said...

As I commented to Guido, I think they are going to need the legal advice and it won't be free. Electoral commission rules are the least of their worries. How about the Proceeds of Serious Crime act 2002 or the Money Laundering regulations 2003? This is far more difficult to understand that the dodgy loans for lordships by NuLab but actually far more serious legally. The LibDems are potentially in breach of criminal law in that they perfomed inadequate due diligence and were in receipt of money stolen from third parties and washed through a shell company (5th Avenue Partners). If I were a creditor of Mr. Brown I'd be taking legal advice to potentially sieze LibDem assets whilst I sought a winding up order as they received my money which was stolen from me by a convicted fraudster. Very very grim for the LibDems and the media have barely picked up the legal ramifications here. I hope the LibDem treasurer who was accountable at the time for this has a good brief. They'll need him.

Anonymous said...

Ming,

Route 1.

Plead Guilty.

Your lawyer will argue diminished responsibility as the Leader at the time was 'tired and emotional'

Route 2.

Cross the floor and leave the sorry mess to the lot left behind..preferably Oaten who should pay up for what he did to our party.

Route 3.

Apologise. Say it is because you are a closet homosexual and your hair is coming out and your wife lives in Edinburgh and you have been so lonely and everything...

Route 4.

Pay up!

strapworld said...

Iain,

Does this mean Ming will be alongside Rooney at Man U now?

Anonymous said...

Iain - I think you (and The Times)are in danger of over-egging the pudding just a tad.

The issue is whether the Limp Dems carrid out reasonable checks at the time. If it has taken HSBC and the other authorities this long to uncover Brown's fraud it hardly seems reasonable to have expected the Limp Dems to uncover his fraud in 30 days.

Of course if The Times are really clever they could increase the pressure on the Limp Dems they could hand back the cahs they received for Limp Dem ads during the campaign!

Anonymous said...

Oh - and given that the LDs are currently the only party in the black - do you really think having to find £2 mil would bankrupt them?

Inamicus said...

By their own logic, the Times are just as guilty by accepting this money for Lib Dem election campaign ads.... perhaps the Times should pay up as well?

Anonymous said...

Interestingly Iain the Judge said that Brown's scheme had been fraudulent from the start and that 'It is also clear that Michael Brown tried to hide the fact that there had been no legitimate trading with the funds supplied to him.'

Now if it took a High Court Case, HSBC and the EC this long to unravel with all their available resources how much due care over an above what PPREA requires.

Austin Rathe said...

Iain,

Bankrupt? I think not. Large cock up? Yes. I think the Lib Dems error here is not being as clever as the other two at hiding large donations.

Danvers said...

I am not sure what due diligence the Libdems have claimed to have done into 5th Avenue. If they were a bank accepting deposits, under money laundering rules, they would have needed proof of identity - passport, gas bills etc - of the directors and major shareholders. On no basis would you expect the Libdems to have inspected the accounts of 5th Avenue or conducted some sort of forensic exercise on their bank statements.

To impose a duty on political parties that said they need to investigate the ultimate source of all their funding would be extremely burdensome and expensive for them to comply with.

Ultimately, if those defrauded by Brown wish to sue the Libdems I guess they will have an uphill battle although I am sure will create some interesting legal precedent.

Danvers said...

And to answer your question, Iain, the investors could not issue a winding up petition against the Libdems until they had established that they were entitled to the money from the Libdems.

If they were entitled, a more enticing prospect might be to appoint Provisional Liquidators to take control of the Libdems. There is no end of fun they might have...

The Cat said...

I'd have thought - even if Edwards were successful, which is unlikely - then £2.4m rather pales into insignificance compared to the debts of the other 2 parties.

If that made the LDs bankrupts, what would it make the Tories & Labour??!

griswold said...

Lib Dem 'donation' represents stolen money. No ifs no buts. Handing back is what any person with morals would do irrespective of the law. This theft by Brown is not a victimless crime. Ask HSBC, ask Edwards consortium. That apart LidDems did not do a proper due diligence. They grabbed the cheque with both hands whilst asking a few cursory questions, They are more incompetent than criminal.Send the money back before the bailiffs arrive you sanctimonious idiots.

Danvers said...

In response to Mark Williams, his points apply to donations which have not come from a permissable donor - which is defined by the Act. 5th Avenue was a permissable donor (everyone assumed Brown was donating through his UK vehicle, since he, as a Swiss resident, was not a permissable donor).

There is nothing I can see in the Act which refers to what happens when a legit donor donates tainted funds. The usual civil law remedy would be a tracing claim - this can be defeated by a defence that "adequate consideration" was given. This would be an interesting defence in the context of a political donation.

If you have not guessed by now, I am a lawyer, but not a Libdem.

Blairs Paid Ego Parrot said...

The Lib Dems are wary of coin of the realm.Ming Campbell's afraid someone will place two on his eyes.

james higham said...

How could the Lib-Dem's be seen as a credible alternative government and why do they still trade? What exactly do they represent now?

Anonymous said...

Good job you are (almost0 a journo, not a corporate lawyer Ian. Due dilegence is a long way from certainty, and of course the present judge's view on the one matter might possibly be appealed.

The Lib Dem's possession of that cash was much the same as someone who made rerasonable (but not exhaustive0 cheques before buying a car which was, much later, found to be stolen. Arguably the Lib Dems' greatest sin was in spending all that dosh on those non-too-brilliant posters which probably didn't win them a single seat but made someone in Cowley Street feel 'big'.

Mikail Bruin said...

Salmond was amusing when being asked about a donor whose business interests may have been at variance with the party policy.

Shrugged his shoulders and said the SNP didn't have donors who were arrested like Labour or in jail like the Lib Dems.

They're also running a blog on their website though they've not printed any of my comments yet.

Pedant said...

I'm not quite sure how they laundered the money. Not quite the same as breaking electoral law.

Mark Williams said...

In response to Danvers, 5th Avenue Partners was not a permissible donor because although it was a UK incorporated company it was not carrying on a business in the UK (according to the Judge in the recent case).

The legislation says the donor must be "a company-
(i) registered under the Companies Act 1985 or the Companies (Northern Ireland) Order 1986, and
(ii) incorporated within the United Kingdom or another member State,
which carries on business in the United Kingdom."

As has been abundantly clear from the start, 5th Avenue Partners never carried on any business. It had a sole director, £1 of capital, it never filed any accounts at Companies House, no employees, and a trip to the top of the stairs at 26 Upper Brook Street whould have shown that there was no nameplate and no-one in because that was Michael Brown's London flat, not an office.

For your information, I am not a lawyer, but I have had extensive correspondence with the Chief Executive of the Electoral Commission whose view on the "business" requirement for corporate donations is similar to mine. He is a former Revenue inspector and is thus very familiar with what constitutes a "business" under English law .

Anonymous said...

James Higham, yes the Lim Debs do still trade, but with Oaten demoted it is not-such-rough-trade.

Remember, it's not just Labour MPs like Brown smoothies!

Tom Paine said...

My considered legal opinion is that their financial position is still more credible than their policies.

Some schmuck will cough up to save them, I expect.

I hope so. They are amusing. Where would we be in these dark political days without Mark Oaten?

Danvers said...

Sorry, one more thing. I am not sure I can agree that the LibDems can really be accused of having benefitted from "stolen" money. The investors into 5th Avenue knew about the donation and presumably didn't complain at that point. In fact, if the rest of their money was being used for illegitimate purposes then fine, that was stolen from the company by Brown - but the money wasn't stolen until it left 5th Avenue's bank account.

And Mark - OK, I missed the bit about carrying on business - but what constitutes that will obviously be arguable in the context of an investment vehicle and, again, not something you could expect a political party to form a view on. Still, would be delighted at the propect of Libs having to disgorge all that cash...

wonkotsane said...

Ignorance is not a defence. The law says that they have to ensure the donation is legitimate and if they did not do so they have broken the law. The fact that it took so long for everyone else to figure it out is an irrelevance - that would affect the sentence but not the verdict.

"Sorry your honour, I didn't realise that it was illegal to sell duty free fags and booze to my family" isn't a valid defence, nor is "Sorry your honour, we didn't realise that the money was coming from a dodgy company that doesn't actually trade".

Anonymous said...

This is what the Electoral Commission says:

What action must my party take when it receives a donation of more than £200?
You must first decide whether there is any immediate reason for your party not to accept the donation. If not, all reasonable steps must be taken by or on behalf of your party to confirm (or, if necessary find out) the following details:
(a) the identity of the donor;

(b) whether he/she is a permissible donor;

(c) in the case of a:

(iii) Company - the company's registered name, the address of its registered office and the number with which it is registered;

15. What if the donation is from a company?
There are special rules governing political donations by companies. However, these are a matter for the company itself and its shareholders. Your party needs only to be satisfied that the company meets the requirements of Part IV of the PPERA 2000 to be a permitted donor. It is under no obligation to ensure that the company has complied with the requirement of the legislation.

Anonymous said...

Given the people involved in the litigation, I don't think that we should forget the potential legal costs. If a case were to go to court with costs awarded against the Lib Dems, I wouldn't be at all surprised to find that they had to pay out several million. All rather hypothetical at the moment though.

Shotgun said...

This would depend on the status of the LibDums. Are they a company? A charity? A club? etc. etc.

wonkotsane is right though: either way they have to pay back the money and there are plenty of precedents in law to see this to be the case. A pecuniary advantage like this, whether gained intentionally or by default, is bound to be repayed...simple as that.

The only way the LibDums can avoid having to pay it out immediately is to make a deal to pay interest and compensation to those who were conned originally.

Mark Senior said...

As I have said before should it ever come to the point of having to pay the money back ( and I am still unconvinced of that ) it would actually prove a windfall for the LibDems . The appeal for money to their members of around £ 30 would result in many members donating far more and a net receipt to give a healthy election war chest that would be the envy of the other parties .

Anonymous said...

This is all very dispiriting I must say. It used to be the absolute right of a corrupt British gentleman, under our fine laws, if he wished to purchase an MP, a judge or indeed an entire political party or policy, to be able to do so. I for one find it both undemocratic and a stain on our nation that this should no longer be allowed. However, I am partially reassured last night watching Sky News, where Sun journalists and Sky journalists are on tap to slag off the BBC - at least a newspaper proprieter can still purchase TV opinion and a Prime Minister! So there is some justice left in our fair land!

Off Message said...

I'm with Mark (though not politically), and can see the stories now: "Plucky Lib Dems fight on."

"Lib Dem Appeal passes £2 million mark" etc etc.

Best for them to stew in doubt for as long as possible completely distracted from the day job.

william norton said...

It's really quite simple. If the money was not 5th Avenue Partners' to give, then it is not the Lib Dems' to keep: nemo dat quod non habet as we say up here in Birmingham. The Lib Dems are holding the cash on trust for the rightful owners. A very straightforward Chancery action for recovery.

Reasonable enquiries have nothing to do with it (except perhaps the separate issue of whether the Electoral Commission will fine them for breach of the donations rules). You cannot acquire title to stolen goods.

If the Lib Dems cannot repay the money then they're in debt. The Lib Dems are not, I believe, a company and so the liability bounces onto whoever in the party has legal responsibility for the debts. (For example, in the Tory Party it is the members of the Party Board - which is about the only use the Board actually fulfils - and I think in Labour its the NEC.) If this was a group of people, I would expect liability to be 'joint and several', i.e. the true owner could pursue any individual for 100% of the debt (and it's the problem of the payer to then pursue his fellow guarantors for recovery of their share of the debt).

Westmorland Activist said...

There is no one who would like to see the Lib Dems cease to exist more than me. Unfortunately this is not going to happen. If it comes to law then no matter what evidence is produced there will be a verdict vindicating the Lib Dems - the law is a moveable feast. Having said that I have no doubt that if it were us Tories in this predicament then we would be found guilty as charged.

I wish COLIN were right on funding limits. I know a councillor who sent two posted letters to every house in the ward including allegedly his own and certainly his opponent's ! This would have eaten over £550 of his £750 maximum spend in itself. Let alone the nine other leaflets which he delivered from the comfort of his 4x4.

Even if you round up 30 or 40 of these letters and the envelopes from all over the ward you cannot PROVE they went to every house. A postman can tell you off the record that in deed they did but if he were to give evidence then he would certainly be sacked.

I have seen the same thing in a parliamentary election - see Tim Collins's post on another Conservative blogging site.

The fact that the police referred to the Birmingham vote-rigging scandal as Operation Whinge demonstrates that they couldn't give a f***.

The way around this is to make it the law that all expenditure has to go through the returning officer. Make it illegal to use the ordinary post. Printers of election material to be paid only THROUGH the returning officer. Then we all know that he really was only paid £23.56 for 7,600 copies of that 8 page A5 full coulour booklet. Might not do it again on those terms. I'm serious about this bit and we should all be pressing for it. I would not like to put a number on how many seats a certain party holds at national and local level because of the lack of such a provision but it is not a small one.

Mark Senior said...

I hadn;t actually considered the news management side of raising the money should it be needed . There is great potental there for someone to positively portray it as a successful appeal rather more skilfully than the barometer on the side of a church showing x amount raised towards y .

Mark Williams said...

Scottish LibDems have repeated the mantra (in the Glasgow Herald) that they should not have to hand back a donation that was accepted in good faith (whatever that means). Fair enough, if they want to run that argument, all the Lib Dem MP's should resign and stand for re-election to avoid any accusations of running campaigns funded by dodgy money.

Dr Maybe said...

Lib Dems received money from someone who had stolen it. They didn't know that at the time, and didn't find out about it. They might have legal problems if it can be shown they didn't make sufficient effort to find out about it.

The Tories and Labour both are imbroiled in a cash for peerages scandal (having one of your donors questioned under caution quite definitely makes you imbroiled).

So that leaves who, exactly, for English voters? UKIP? No wonder the percentage voting is going down.

Mark Senior said...

Mr Williams , I am sure the LibDems will follow the example of any Conservative who resigns because he was elected with the help of money given by the fugitive Asil Nadir .

Mark Williams said...

Mr Senior, It appears that the Lib Dems prefer the example of Michael Brown and live off proceeds of crime.

Anonymous said...

After much huffing and puffing above, the legal answer to your question is that a winding up order could not be granted. The "debt" is disputed and that is completely decisive - the courts have no power to make an order. They would need a judgment on the status of the debt first, and that is clearly some distance away (indeed, on that point, I would be very relaxed as a Lib Dem lawyer on the facts so far).

Anonymous said...

So... latest from the Electoral Commission on this...

"The Electoral Commission has previously made clear its view that it was
reasonable for the Liberal Democrats - based on the information available to
them at the time - to regard the donations they received from 5th Avenue
Partners Ltd in 2005, totalling just over £2.4m, as permissible.

"It remains the Commission's view that the Liberal Democrats acted in good faith
at that time, and the Commission is not re-opening the question of whether the
party or its officers failed to carry out sufficient checks into the
permissibility of the donations.

"Nevertheless, we have always said that if any additional information that has a
bearing on the permissibility of the donations comes to light, for example as a
result of the ongoing police investigation or legal proceedings relating to the
affairs of 5th Avenue, we would consider the matter further.

"It is not clear to the Commission that 5th Avenue Partners Ltd was carrying on
business in the UK at the time the donations were made. If not, then the
donations were impermissible. Under Section 58 of the Political Parties and
Referendums Act 2000, the Commission has the power to apply to a court for
forfeit to the Consolidated Fund an amount equal to the value of any
impermissible donation. We are considering the evidence and expect to reach a
decision on whether to apply for such an order in the next few weeks."