Pre-Pack Bonanza

I am no financial expert, as my blog will attest to, but even I know there is a nasty whiff about these 'Pre-Pack' bankruptcies which conveniently allow companies to dump their creditors and start again under new ownership. So nasty is that the Government are stepping in to legislate.

Funny then that the first big case from dumped shareholders is that of Northern Rock and the culprit in this case is none other than the Government itself.

Echoes of Byers

In the fashion of the fiasco on the railways when Stephen Byers left shareholders in the lurch, Alistair Darling has repeated the behaviour. In his defence on behalf of one shareholder, Hedge Fund SRM Global, Lord Pannick QC claimed the Government set out the terms for shareholder compensation which dictate that the bank was treated as though it was in administration when it was nationalised. SRM are not the only ones wanting a judicial review to look into the Government's seemingly heavy-handed behaviour and should they be successful then the Government might have to pay out compensation of around £1.8bn to investors should they win.

It's an amount that almost makes Ron Sandler's fees palatable.

Upside?

Bizarrely, Lord Pannick's argument is that the Government is set to make a packet when it sells off Northern Rock when the market takes off again. A secret report by Goldman Sachs for the Treasury supports this view and reckons the Government would make a 'substantial' gain in such a case.

I wouldn't start rubbing your hands as a happy taxpayer as by the time we have paid off 'Happy Gilmoure' Sandler and his army of 'expert' consultants we should have about enough left over to pay the interest on the debt required to do all this. All this assuming Northern Rock will be worth something in the future. I am sure this will really cheer Richard Branson and his consortium who offered to buy the defunct Rock. Not the first time he has been rebuffed by the Government - the last time being when he failed in his bid to run the Lottery but in that case he had not laid on enough free air tickets and cowboy suits for fat Politicians who were ludicrously entrusted to make such decisions of national importance objectively.

So what should be good for the goose should be good for the gander - if the Government doesn't like the 'Pre-Pack' dodginess, it should lead the way by being clean itself. Anyway, I would have let the whole thing go down the toilet properly before rescuing depositors and mortgage-holders and left the shareholders to wallow in their wisdom of buying into a poor business model and plan.