Stephen Dorrell - Criticisms of Business Practice.

Criticisms of Business Practice.

Dorrell has been criticised for his actions when his family owned firm went into a prepack administration in 2009, a "controversial" but legal procedure which the Government’s Insolvency Service said was “mocking rules”. David Blake, director of the Cass Business School in London, believes the method is used to dump pension fund liabilities. The controversy may have deterred David Cameron from inviting Dorrell to join the Front Bench.

Dorrell was a director of clothing company, Faithful, a family business established in the 19th Century which made blue collar workwear in Worcester. According to the finance director,Steve Hall the company had been quite profitable until 2004 when it was split between Dorrell and his brother. By 2005, after a number of unsuccessful acquisitions the company pensions deficit was almost £3m. The scheme was changed to money purchase and the factory site was pledged to support it. However when the site was sold, some of the money was used to buy another business and the firm merged with stock market listed Wensom. None of the money was paid into the scheme. According to Dorrell, the pension now required 10% of the annual turnover making restructuring impossible. An independent trustee was appointed and the pension fund received nothing though Wensum was able to continue in business.

In May 2009 the company was put into a prepack administration which allowed a new company, GG125 to acquire Wensum's assets for £7.9m whilst leaving its debts unpaid.
GG125 was subsequently renamed Wensum Group Limited. The deal was completed in a day, Dorrell receiving a director salary (increased to £200,000 in September 2009) plus 15% share ownership in the new company. As company contributions had ceased, the workers were put into the Pension Protection Fund (PPF) which caps the maximum payable and has limited protection against inflation. Finance director Steve Hall expects to lose 30-40% of his pension because of the cap. Both Dorrell and his wife had already withdrawn their pensions but Dorrell claimed he had lost £550,000 because of the failure and that alternative to the prepack would have offered less.

The prepack was also criticised as "completely immoral" and inappropriate for listed companies by a South African creditor LA group. They sold a clothing manufacturer to Wensum in May 2009 in exchange for Wensum shares which became worthless after the prepack. Another Wensum shareholder compared the deal to a "spider eviscerating a fly it has caught, taking all the good bits, then dropping the useless carcass, which is the creditors, the shareholders, and of course the taxpayer."

In April 2012, the Daily Mail reported that the Fraud Squad were investigating allegations in relation to the sale of "worthless" Wensum shares to LA Group.