Farepak Fiasco
Christmas Voucher Nightmare
The Mismanagement that Cost Millions
Farepak Food and Gifts Limited was a Christmas Savings Company
allowing savers to budget for their Christmas expenditure with hampers
and gift vouchers. The company went bankrupt in October 2006 leaving
thousands of savers out of pocket.
So, just how did Farepak's Christmas wish go up in smoke? Their
advertisements promised to take the financial worry out of buying
presents. Thousands bought into the dream and the money came pouring in.
Turnover peaked at 81 million pounds, and the Farepak Hamper was
bulging.
But all was not well at Farepak. They were part of a group of
companies who borrowed 34 million pounds from the Bank of Scotland , now
known as HBOS, in 2000 to buy another business. This proved to be a very
poor move and just three years later, they sold the business for much
less than they had paid for it. This meant significant losses for
Farepak's parent company.
Loyal agents had no idea that their savings were at risk. They and
their customers had saved their money all year and were looking forward
to Christmas.
Despite having been badly burnt with it's expansion attempt,
Farepak's parent company invested in a further three businesses.
David Winch, a forensic accountant considers the wisdom of this move:
"The difficulty was that a new business like that, itself, needs
money investing in, and it takes time to mature and become profitable
and become cash-producing. They had neither the funds nor the time, The
only funds they could count on were the saver's funds".
Farepak's parent company, called European Home Retail (EHR) already
had a big debt to the bank. In February 2006 things got even worse when
the voucher company that supplied Farepak, Choice Gift Vouchers, went
bust.
Farepak used to pay Choice on redemption of the vouchers, that's when
the vouchers were spent in the shops rather than when the vouchers were
delivered to them. The Terms of Payment with a new voucher supplier
meant they would have to pay cash-on-delivery seriously affecting their cash flow.
Agents were sent letters advising them of the new vouchers and asking
if they would accept these replacement vouchers. The agents and their
customers had no idea that the change in voucher supplier could,
ultimately, end in the loss of their Christmas savings.
By April 2006, the company realised that the new voucher system meant
they would be in dire need of extra cash. By now, the future of the
whole group was looking shaky. They went to their bank, HBOS, and tried
to extend their 40 million pound overdraft limit. The bank said no! So,
for the next six months they tried to find some way of raising the 20
million pounds they needed. Everything failed and, eventually, the whole
thing collapsed taking with it, Farepak and all the saver's money.
The victims aren't the only ones who feel there has been an
injustice. Neil Henderson-Begg of the Hamper Industry Trade Association
said: "The customers have been treated very badly. Most of them
have been customers of Farepak for many years and trusted this company.
I personally think that there was a calculation, that when the
administrators were called in these customers, although many, had very
small voices and wouldn't shout".
Susie Hall
But they have shouted and Susie Hall has one of the loudest voices. She has
done countless press interviews and appeared on television a number of
times. Susie is a founding member of Unfairpak and believes it's success
has been down to keeping it's profile in the press.
The Scottish Parliament invited members of Unfairpak to attend a
debate and this, for Susie, is recognition of how Farepak is at the
forefront of everyone's minds.
What customers really want to know is whether Farepak was taking
their money knowing that they might not be able to pay it back.
What the customers were never told was that, for six months, Farepak
was working frantically behind the scenes to find a rescue package. They
believed, until the end, that there was a solution. But none of the
proposals put forward was seen by the bank as realistic or viable. By
the beginning of October, there was nowhere left to turn.
Neil Henderson-Begg was concerned: "The administrators were
called in on the 13th October, Black Friday, all that happened in that
time was that a million pounds per week was pouring into the bank. Now
this was terribly alarming for us, so we went to our directors to make
them aware of a very serious situation. What was happening to the
agent's payments? Were they being ring-fenced?".
European Home Retail have said they asked the bank twice if they
could ring-fence the saver's money coming in after August. The bank said
this was unrealistic as their was no money left to protect. The company
and the bank may never agree on why the customer's money was lost.
Office of Fair Trading
As a result of her campaigning, Susie Hall has been invited to a
meeting with the Office of Fair Trading. In London, Susie's first stop
is to catch up with Scottish MP Jim Devine. They've been in constant
contact since the Farepak demise and many of Jim's constituents have
been left out of pocket.
After a two hour meeting at the Office of Fair Trading, Susie is
jubilant, she may have had a hand in shaping government policy.
Now that the administrators are dealing with Farepak, the savers
should get something back. But, it's been estimated that for every pound
each person has paid in, they will receive only four pence.
The Farepak
Response Fund was set up to allow donations to help refund the
saver's losses. This raised some £6 million but this only represent 17%
of the saver's funds.
If you have been a victim of Farepak then check out the Unfairpak
Web Site.
CREDITS: All of the above information was taken from the BBC's
"Real Story" documentary series.
