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PMS directors face disqualification

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William Crawley | 17:11 UK time, Thursday, 18 November 2010

The News Letter reports that the Department of Enterprise Trade and Investment (DETI) has decided "that it is in the public interest to seek disqualification orders against six directors" of the Presbyterian Mutual Society. The department has written to all the directors involved. Yesterday marked the second anniversary of the company going into Administration.

The six directors who have received letters from DETI have been told that they face disqualification on the grounds that they caused or allowed the Presbyterian Mutual Society to:

1. Carry on the business of banking contrary to the Industrial and Provident Societies Act.

2. Accept deposits as a deposit-taking business in breach of the Banking Act 1987 and I&PS Act 1969.

3. Carry on a regulated activity, namely accepting deposits, without authorisation under Financial Services and Markets Act 2000.

4. Making loans to non-PMS-members in breach of PMS rules.

5. Failing to ensure the directors met sufficiently often to control PMS affairs.

6. Pursuing investment/lending policies not consistent with PMS rules.

7. Having a director who was not a member of the PMS.

8. Allowing non-members to borrow money.

9. Allowing non-Presbyterians to invest.

Read Philip Bradfield's News Letter story in full here.


  • Comment number 1.

    I suspected that there was more to this story than met the eye from the outset, and now it seems that my suspicions were well-grounded.

    My sympathy is with the investors. I remember the Farepak scandal a few years ago in which hard-pressed savers got around 15p for every £1 they had given to the company. In that case liquidators were called in to help the savers - but I'm not sure about the PMS. Perhaps if these six directors are disqualified, and they might not be disqualified, the hand of the unfortunate investors might somehow be strengthened?

    If these 6 directors acted in the way described above I clearly do not see why hard-working taxpayers should be made to make good investors' losses.

  • Comment number 2.

    If these 6 directors acted in the way described above I clearly do not see why hard-working taxpayers should be made to make good investors' losses

    I would tend to agree, and would question whether the 'investors' should be suing these directors, and possibly the Presbyterian Church to recover their losses instead of asking for a handout from the taxpayer.

  • Comment number 3.

    I agree entirely with what you write, Dave. I am concerned, however, that by waiting two years to pursue the directors and whoever else might be liable for their losses the savers have disadvantaged themselves. Perhaps, some savers feel deceived, but it would be good if one could give us his or her view on the matter.

    Not long ago it was revealed that the Presbyterian Church spent over £4 million renovating its headquarters. Some savers were understandably outraged at the news.


  • Comment number 4.

    I'm not an investor but I am a member of a Presbyterian congregation which has tens of thousands frozen in the PMS. Lots of other congregations are in the same boat and the total must amount to many millions. It means that all Presbyterians have to dig deeper to keep our Churches on the road.

    It has to be said that PMS wasn't a fraud perpetrated by the Church - it was an investment club for members of the Church and for congregations. It was badly run, made bad investment decisions, was ill-regulated by the Government and it went bust during a financial crisis. People invested in the PMS mainly because it offered high rates of interest and it paid high rates of interest because its business was risky.

    It doesn't say much for the people who speak for the denomination that in spite of the Presbyterian Church being one of the principal victims of the disaster, in spite of the hardship funds of different congregations being quietly used to help small investors and even in spite of the Church agreeing to donate a million pounds as an act of Christian charity when there is certainly no obligation to give anything, it is still condemned for repairing its property and paying its employees.

  • Comment number 5.

    "If these 6 directors acted in the way described above I clearly do not see why hard-working taxpayers should be made to make good investors' losses
    I would tend to agree, and would question whether the 'investors' should be suing these directors, and possibly the Presbyterian Church to recover their losses instead of asking for a handout from the taxpayer."

    Who do you think is bailing out the other banks in the uk? Every Presbyterian tax payer is being asked for around £3,000 per household to foot the bill for others banks losses . Why should they be singled out and not helped? The PMS lost a fraction of the amount of the RBS, Natwest Lloyds Northern Rock etc. Yet its directors are being singled out when others have got off scot free.
    Even investors in Non Uk (icelandic Institutions) were helped - Why have PMS investors been singled out.
    And why if PMS directors are to be held to account are those responsible for monitoring financial institutions not being taken to the cleaners over this.
    Kinda makes you wonder about the motivation.

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 7.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 8.

    Dave - just for clarity - all I was suggesting is that, according to Scripture, putting your spare dosh in an interest-bearing account in the Progressive is, like homosexual behaviour, expressly forbidden to the people of God on pain of death and labelled an "abomination". I can see how eating lobster might be conceived of as a ceremonial issue; what I am looking for here is how deriving personal benefit from the need of others can be construed as anything other than a moral issue.

  • Comment number 9.

    The alleged conduct of the directors and the fall of the PMS are two separate issues. Disqualification of individuals will do nothing to strengthen any investor's hand, in my opinion it would seem to be an attempt by DETI to shift some of the blame after having been found partially culpable by the government - and I quote from a public document:

    'We are dismayed, however, that the Department had access to all the relevant information and yet this did not result in any preventative action or further examination being undertaken. We are surprised that DETINI did not consider whether the regulatory gap needed to be filled. This may well have entailed action in London as well as in Belfast, but as the department closest to the problem, DETINI should have taken a lead in identifying the problem, and in seeking a solution. This is a matter for DETINI.'

    The fall of the PMS (and I am speaking as a member) was not caused by the directors, but by a run on its funds by its own members, precipitated by a wider global financial crisis and rendered catastrophic by DETI's apparent failure to discharge its regulatory responsibilities. Whether the PMS was badly run or not is actually a separate issue which has no bearing on the reasons for the society's collapse. In relation to the comment above about bad investments they were in fact very sound but the continuing revenue flow from those investments is simply not accessible due to the current administration.

    It strikes me that as members, we should be clear about the issues in hand and stand behind our organisation in protesting against the parlous, shabby hand we have been dealt by our government. We certainly should not deflected from the main issue of when the rescue package will be delivered by DETI'S apparent scape-goating of individuals who have given of their free time for decades on a voluntary basis, and many of whose assets are also all locked in the PMS. No justification is yet forthcoming as to why six individuals have been selected to answer for the alleged activities of an entire board, and as others have observed, the Directors of Northern Rock were not voluntary, are still in their posts, were not subject to disqualification actions and are presumably still collecting a bonus. The PMS was seemingly failed by the external professional and governmental bodies to which it was accountable - accountants, auditors and DETI - yet now finds itself subject to legal action by one of those very same bodies.

    One other point about the proposed disqualification - if this goes ahead, it will possibly set a UK legal precedent whereby anyone serving in a voluntary capacity - on a school board or a charity for instance - could in certain circumstances face disqualification from acting as a director of any business. In short,volunteering for a charity could have the potential to end your career. And where will the voluntary and charitable sectors be then.

    So yes, one wonders what the real motivation might be.

  • Comment number 10.


    Two things,

    1) It is the duty of the Directors and Sponsors of a financial organisation to run that organisation within the regulatory framework. It is the duty of government to set the regulatory environment and investigate and penalise where they see fit, but the primary responsibility is with the directors. You see the difference in the words - direct and regulate. The fact that DETINI did not do something does not exonerate the directors from any wrongdoing. Its like blaming the police for not stopping a crime instead of the criminal.

    2) People in voluntary organisations have always been liable financially and legally for the organisation, nothing has changed. NI does not have a charities commission as such and so the only protection financially, as I understand it, is to be a company limited by guarantee. Just because you do it for free and fail does not mean that you should be allowed to do it again. Disqualification is based on competence not virtuousness.

    The fall of the PMS (and I am speaking as a member) was not caused by the directors, but by a run on its funds by its own members, precipitated by a wider global financial crisis and rendered catastrophic by DETI's apparent failure to discharge its regulatory responsibilities.

    That is incorrect, other properly run and prudent financial institutions did not collapse, the PMS collapsed because of the high risk for gain strategy (at variance with UK regulations) taken by the people running it. DETINI did not ask, force or advise PMS to make such absurd investment decisions. DETINI did not run PMS the directors did, the directors took high risks and lost.

    If everything had gone as the directors dreamed, how much of the profits from the unregulated investments would you be handing over to the government who is at least offering you something.

    Many other private investment clubs went to the wall and are not getting the same special treatment as you are, I think it would be humble of you to take your medicine, your compensation and stop complaining (except to the directors and the PCI who between them advised you to save and stand accused of playing fast and loose with your money).

  • Comment number 11.

    OK Dave, but you do not address why in this case DETI did not set the regulatory environment as they should have, hence the widespread use of the term 'fatal regulatory gap' - that's my point and why I included the government's findings in response to the Treasury report. Furthermore I am not attempting to exonerate the directors as the very same report - if you take the time to read it - also finds them to be culpable to a degree but not in any criminal capacity. Oh, and the fact that DETI were in receipt of the Society's reports both from the directors and external auditors, which were legally required to be submitted to them on an annual basis yet failed to either investigate or comment upon them, does kind of render them a little culpable. It's a bit like not reporting something to those pesky police. I think that was the government's point.

    I am however questioning how this as yet unsubstantiated action against a few voluntary board members - no doubt at the expense of the tax-payer (whilst paid directors of other much larger financial organisations, who also engaged in high risk strategies but unlike the PMS WERE subject to the FSA and yet were not pursued, as our fellow bloggers have noted) will resolve any wider questions as to why DETI did not identify the gap, fulfil its regulatory responsibilities within NI, nor speed the return of anyone's money.

    You are correct that it is the primary responsibility of the directors to ensure that an organisation is properly run but the PMS was regularly accounted and audited as per legal requirements throughout its history by external professional bodies, and it IS within the remit of an external auditor to comment or advise on activities which it may consider to be imprudent or irregular. As I understand, at no point was anything raised. This again does not exonerate the directors, but it is still a question which should be answered.

    In relation to the consequences for the voluntary/charitable sector, there has never been a case where a voluntary director has been disqualified and it does have the potential to discourage people from acting on boards if their own professional or personal life may be affected. Companies limited by guarantee are legal entities in their own right. This means that any agreements or contracts are held in the name of the company and contrary to what you say, the extent to which individuals/trustees can be held liable is in fact very limited. According to colleagues of mine in finance and law, something as simple as one's credit rating or ability to raise a mortgage could be devastated by this legal development if successfully prosecuted - never mind those who run their own companies. Sure, stop someone from acting in a particular capacity again if they are proven less than competent, but don't destroy their life.

    I am not complaining, refusing to take any medicine or attempting to absolve anyone of responsibility where it is due, I am simply pointing out that in the light of this development there are some wider questions to be answered about a chain of flaws in our local financial system which should not not be whitewashed by the public apportioning of blame to a few easy targets.

  • Comment number 12.

    OK Dave, but you do not address why in this case DETI did not set the regulatory environment as they should have, hence the widespread use of the term 'fatal regulatory gap'

    The regulatory environment was set by government, the PMS chose to operate outside that - that was the fatal regulatory gap. It is not for DETI to close that gap but for financial organisations to operate within the financial regulations. DETI could have been more rigorous in telling PMS to sort itself out but it being the police does not exonerate the criminal.

    I fail to understand why you think people who followed high risk strategies but were within the FSA regulations should be chased in the same way as you seem to be suggesting PMS directors are being singled out. The point is they operated within the regulations, the PMS directors did not. Are you suggesting that a fake doctor can use a defence that the authorities are not prosecuting real doctors for carrying out the same treatment.

    As for people working in the voluntary sector I do not see why the requirements and penalties should be any different whether you are paid or not after all the competencies and consequences are the same. We are talking hundreds of millions of pounds here not the proceeds of a bring and buy sale. To be honest as this was simply a financial organisation I really think it was sailing close to the wind even playing in the voluntary sector.

    The PMS had choices, they could operate within the regs or not, they could take hi risk gambles or not, they could accept high gains or low gains. The savers had choices they could chose high risk or low risk, they could chose a reputable financial institution or not, they could chose the level of their personal exposure to high risk. They all knew the consequences of their decisions and the critical one was that the PMS operating outside the regulations meant no protection.

    You are getting some compensation despite the decisions you jointly made placing you outside the compensation umbrella. Personally I would be grateful for that.

  • Comment number 13.

    The taxpayers shouldn't be on the hook for bad banking practices.

  • Comment number 14.

    If there is going to moderation it ought at least to be competent. My post # 6 above was removed because it was deemed potentially defamatory - absurd. So, let me separate it all out, point by point, into separate posts to see if it can be determined where the defamation lies.

  • Comment number 15.

    In response to Dabar - # 5 - I said that there is surely a significant
    difference between the banks and the PMS.

    Many banks and investment institutions made poor investment decisions allowing greed to trump prudence but, while accusations of incompetence or even recklessness may have been levelled, I have not heard it suggested that any of the directors of a major bank or building society acted illegally.

  • Comment number 16.

    The six directors of the PMS are accused (as reported in the blog article on which I am commenting) of both breaching the rules of the society (points 4, 6, 7, 8, and 9 from the summary of the DETI letter cited in the article) and of breaking the law (points 1, 2, and 3 from the same document). They are also accused of failure to exercise adequate control of the society's affairs (point 5).

    I assume people would believe that those accused of law-breaking should be held to account?

  • Comment number 17.

    I also responded to Belfastconfetti - # 4 - when he referred to the PMS as "an investment club". I suggested we might instead call the PMS by the term the Bible would use for such an enterprise: an abomination. Taking interest is forbidden in the Law of the Hebrew Bible and condemned unmistakeably by the Prophets.

    "If he has exacted usury or taken increase shall he then live? He shall not live! If he has done any of these abominations he shall surely die; his blood shall be upon him". (Ezekiel 18:13)

    We are talking about an investment institution with close if, perhaps, informal links to a Christian church which takes a staunchly Biblical moral position. It is relevant to cite the Bible in such circumstances and to require an answer as to how such strong and unambiguous moral prohibitions could be laid to one side.

  • Comment number 18.

    I went on to compare and contrast the official attitude of the PCI to the PMS and to practising homosexuals.

    I can not distinguish how a church could facilitate and institutionalise the lending of money upon usury to its own members while at the same time condemning gay sex as sinful. I can not see any biblical distinction between the two things whatsoever. I would love to hear the difference explained.

  • Comment number 19.


    That's quite a roll you're on! You have me hooked and I'm not even able to read what you've written yet.

  • Comment number 20.

    Let me make a further comment because we have learned that we have to be very careful where people might draw an analogy.

    The ordinary punter investing his spare cash in the PMS is, in my opinion, engaging in a morally equivalent act (from a Biblical perspective) to that of two consenting adult males enjoying sex together. Both are, of-course, legal activities in Britain today.

  • Comment number 21.

    If the PCI wished to make money for its members and were not too careful about abiding within the law it could probably turn in a nice little profit by running a string of gay brothels. I do not care to draw any further analogies...

  • Comment number 22.


    I may have to withdraw my concerns about meaninglessness, we seem to be communicating quite adequately without words! Perhaps this is a sign that W&T would continue even if the moderators failed to moderate a single post!

  • Comment number 23.


    I too would be very interested to see the explanation for this 'apparent' hypocrisy. I fear however there will be an out clause somewhere - for the savers not the homosexuals obviously.


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