Daily Mail Reports on Cobham Case - 7th February 2017
Cobham bosses stripped cash from failing firm:
2.3m share scandal rocks defence giant
By RACHEL MILLARD FOR THE DAILY MAIL
PUBLISHED: 22:59, 6 February 2017 | UPDATED: 22:59, 6 February 2017
Executives at Cobham stripped £2.34m from a subsidiary before it went bust, it is claimed.
Christopher Jewell, finance director of the engineer’s aerospace and security division, and the firm’s senior vice-president Stephen Beeching are fighting allegations they knowingly took the cash from mobile-phone-tracking specialist MMI Research weeks before it was wound down.
Papers filed with the High Court claim the pair who were made directors of MMI were responsible for moving £2.34m from the company to another part of Cobham.
Cobham is not being sued and declined to comment
This left MMI unable to pay debts from a copyright case it lost or to stump up the cash for a huge bill following a tax-dodging investigation, it is claimed.
As a result, MMI was wound down having failed to pay the money.
Now litigation fund Manolete Partners is suing the two executives demanding £2.3m it believes company liquidators were deprived of. Both men are fighting the claim.
Jewell, 52, worked at Cobham for nine years before leaving in December 2015, according to a Linkedin profile.
Beeching, 47, joined in 2008 and remains a senior vice-president. He previously worked at tech firms Misys and Nortel, according to his Linkedin profile.
Cobham is not being sued and declined to comment but the case comes at a turbulent time for the air-to-air refuelling specialist, which in January issued its fourth profit warning in less than 12 months.
Litigation fund Manolete Partners is suing the two executives
Cobham bought Hampshire-based MMI in 2008 for £13.6m from entrepreneur Mark Slatter, hoping it would help it win work in the surveillance industry.
At the time MMI was embroiled in a copyright battle with rival, Cellxion.
Cobham later discussed combining MMI with another subsidiary as part of a streamlining process.
With the court battle still raging, Cobham decided to sell MMI as a shell company back to Slatter so he could pursue the claim individually.
When MMI lost the copyright case in January 2012 it faced a huge legal bill. It was at this point, court papers reveal, that Cobham decided to go ahead with the streamlining.
Under a transfer arrangement a dividend of £2.29m was paid out of MMI to another Cobham subsidiary. Further funds were withdrawn in the form of an interest-free loan worth £50,000.
The court papers claim Jewell and Beeching knew this ‘could have the effect of leaving MMI as an empty shell with no assets and unable to meet adverse costs’.
A spokesman for litigation firm Manolete says:
The directors made no provision for, and did not reserve any funds for, the liabilities owed to creditors, namely Cellxion and HMRC, although they knew, or ought to have known, that MMI was liable to those creditors respectively for litigation costs and outstanding tax.
‘Once the full amount of the sale proceeds had been transferred to Lockman [the Cobham subsidiary], MMI was bereft of the means to discharge its liabilities to Cellxion, HMRC and other creditors.
MMI was also allegedly facing demands for payment from the HM Revenue & Customs following a tax-dodging investigation.
HMRC told MMI in February 2006, before it was bought by Cobham, that it was investigating its share scheme on the grounds it was a disguised pay being used to dodge PAYE and national insurance.
In October 2008, HMRC wrote to MMI to say it needed to pay £505,284. In 2011 it said it owed £1,195,636. By the time MMI was being liquidated in 2015, HMRC was owed £726,595.
Manolete’s lawyers claim directors were aware of the risk of MMI being liable for costs from the court case and believe internal emails prove this.
In defence documents filed to the high court, the two defendants say emails been taken out of context.
They maintain the dividend transfer was lawful, and say MMI was not left as an ‘empty shell’.
The pair say they understood Slatter was indemnified to pay for the costs and liabilities of the copyright litigation.
They did not benefit in any way from the dividend, they add.
Cobham declined to comment. Beeching, Jewell and Slatter declined to comment.