Saturday, January 16, 2010

PMS saga continues

Over the last ten days or so, the Northern Ireland news agenda has been dominated by the emerging Robinson-gate saga, revelations and clarifications around Liam Adams political involvement as well as a renewed focus on resolving the roadblocks (and parades) standing in the way of the devolution of policing and justice in Northern Ireland. This has squeezed the coverage that other news stories perhaps deserved.

(For out-of-NI readers, NI’s police and court system is still run from London, whereas the power to run hospitals and schools has transferred to the control of NI politicians already.)

Presbyterian Mutual Society (PMS) logo

There have been a few developments around the Presbyterian Mutual Society which has been in administration since November 2008. I’ve mentioned PMS on the blog a few times before. The administrator’s eighteen month term runs out in May 2010.

In an unusual move, administrator Arthur Boyd, went to the High Court to apply for a five year extension. The Newsletter reported:

A judge may allow an administrator to run the troubled Presbyterian Mutual Society until 2015, if a buyer is not found, the High Court has heard ... The judge said he was “minded” to agree to the application provided a mechanism was put in place to allow investors to oversee how the PMS was being run. The case was adjourned for three weeks.

During today’s High Court hearing, Arthur Boyd’s legal representative accepted that the five year extension was an unusual request but said that it was an unusual set of circumstances and the additional time would allow his client to deal with the society’s assets in an appropriate matter.

Mr Shaw said they included 13 investment properties spread throughout in England, Scotland and the Isle of Mann, the Glengall Exchange building in Belfast and the PMS loan book. He told the court that it would not be in PMS members’ interests to sell the assets in the current market. He added that the mutual society was currently in receipt of GBP 7.3m in annual rent from its investment properties.

Mr Shaw also said his client had offered to report to the court at six month intervals to give an up-to-date account of the running of the society. Judge Deeny agreed that the circumstances were unusual but explained that the court had neither the expertise nor the provision to monitor how the society was being run. Instead, he said, some mechanism must be found which would give creditors a voice in the proceedings.

The judge added that he was not suggesting for one minute that Mr Boyd would be anything other than scrupulous in his actions but said that matters such as fees, and the avoidance of duplication of staff between the PMS and the administrator must be monitored. He said that if the PMS had gone into liquidation or receivership it would be subject to some form of scrutiny.

He suggested that Mr Boyd’s legal representatives approach a major investor in the PMS and ask him to act in a monitoring role on behalf of creditors. Judge Deeny said that if the individual did not want to agree to such a long term role, then other members should be approached, and suggested a group made up of the five biggest investors as a possible alternative.

He said that in usual circumstances there would be an obvious candidate to approach but the was not the case with the PMS. Mr Shaw said the idea deserved consideration and it was agreed that the administrator, or his legal team, would write in advance of the next court date, January 27, to explain how they would resolve the matter of creditor representation.

On Wednesday there was more explanation when the administrator issued a statement (online, but not by letter) explaining the timescale for making the first payment back to PMS members and creditors.

“... I have applied to the court for directions on a number of matters. As I have said, I want as soon as possible to pay a first distribution of capital back to members/creditors but I need the court’s permission to do that. Also, because of the delay in the Government Working Group’s report on any possible alternative for members/creditors, I have taken the precaution in case of a prolonged insolvency of seeking an extension of the administration for five years.

I have also sought direction as to whether I should make a distribution to both loan capital holders and shareholders and a direction on how set-off should be applied for members with borrowings from the society. The court has adjourned these matters until January 27. Contrary to one report last week, the judge has not refused the extension of the administration. He has said he is “minded” to grant it but has asked my legal team to look at some matters before the next hearing.

Unfortunately I cannot make a distribution until I have the court’s permission. Assuming this is forthcoming on January 27, I am then legally obliged to give 28 days notice to members/creditors to whom I am directed by the Court to pay a distribution. So at present, the earliest I can envisage making a payment is March.”

A third twist in the tale comes in the form of the advance release (on his blog) of the comments Presbyterian Moderator Stafford Carson plans to make to the Treasury Select Committee who are meeting up at Stormont (instead of their usual Westminster) on Monday.

The case for the PMS savers is very simple. They are the only savers in a distressed financial institution in the UK who, during the worst post World War II recession, have been denied access to their savings for nearly 15 months. It has been the Government’s proud boast that “throughout this whole crisis, everyone that has been saving in a UK institution has been protected whenever there has been a difficulty in that institution”. That has been so regardless of the culpability attaching to the institution for its failure.

If the other distressed institutions which the Government has bailed out, with their millions of savers, had been dealt with as the PMS has been, the country would simply have been ungovernable and the economy would have collapsed. It is a monstrous injustice that a small group of savers (some 10,000) in this part of the UK should be treated differently from the great mass of their peers.

For six months the Government took no interest in the matter. Under pressure, it conceded in June that a Working Group should be set up, to report to the Prime Minister in September. Seven months on, it has still not reported. The tardiness of the process is wholly unacceptable. PMS savers have displayed remarkable patience.

The delay also creates difficulties for the Administrator, who has recently made application to the courts for advice on various matters, including the basis on which he should make the initial distribution which he now proposes. This brings to the fore the issue of the status of loans and shares. Throughout the existence of the PMS, members’ loan capital and share capital were treated equally, with no priority between them when the Society made distributions. A (presumably unintended) consequence of Administration under insolvency law was to introduce a hitherto unknown and artificial distinction between them. Any interim distribution or, still worse, any ultimate resolution of the PMS’s difficulties which reversed the founding principle of mutuality and discriminated against the smaller savers would not only be a grossly unfair but also a hugely divisive outcome for Presbyterian congregations. The Church has made clear throughout to the Government the need for urgent resolution in order to pre-empt these problems. The Government appears not to take this seriously.

The only solution which can produce (at least cost to Government) the same outcome as was achieved for other savers in the UK (and, indeed, the Republic of Ireland), is for the assets and liabilities of the PMS to be absorbed by a substantial existing financial institution. The Church made a proposal to this effect to the Working Group early in August.

The Government was extremely dilatory in adopting the proposal and then in pursuing it, bearing in mind the remarkable expedition with which it rescued the UK’s biggest financial institutions. We would have expected Government to call in the Heads of appropriate financial institutions, to indicate to them Government’s unequivocal desire to put PMS savers into the same position as their peers elsewhere in the UK, and to seek a partnership with one or more of the institutions for that purpose. Instead, the Working Group has instituted a process with the financial sector which has dragged on for months in a manner wholly out of keeping with the urgency of the situation. We have drawn our acute concerns about this to the attention of the Secretary of State in a letter just before Christmas. Anything the Committee can do to induce the Government to conclude with the utmost urgency an arrangement with a financial institution which achieves the outcome set out as described above would be greatly appreciated.”

Just before Christmas, the Newsletter – the local paper which has probably been most closely following the PMS saga (spot the paper with Presbyterian readers!) – speculated:

Talks are at an “advanced stage” with a bank about the possibility of it buying over the troubled Presbyterian Mutual Society.

Lagan Valley MP Jeffrey Donaldson, who has been closely involved in lobbying for Government support for the PMS, said there had been progress.

“Detailed discussions are taking place with one major bank about buying the PMS with Government support.”

During the Autumn, Donaldson had been asking for PMS savers to come forward to him if they had information about bank involvement or advice that might have led to the run on the PMS capital that quickly led to it going into administration. However, there has been neither confirmation of any bank wrongdoing, nor any bank rescue.

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