Fraud law – the Tchenguiz case

by evolvedlegal on May 9, 2012

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At the focal point of this dispute is the UK’s largest residential freehold portfolio, worth an estimated £2bn and the complexities associated with many civil fraud cases. It was from this Vincent was able to make payments needed for his extensive network of offshore and UK based companies.

In 2008 Vincent pledged shares in his offshore holding companies to the bank Kaupthing. This was done for two reasons; to make up the deficit in an existing loan agreement Kaputhing had with his brother Robert – this shortfall was estimated to be to the tune of £200m. At the time Robert was one of the bank’s primary customers receiving over £1.5bn in loans from the bank. This helped him to build up major stakes in such companies like Sainsburys and the pub group Mitchell & Brothers. However both of these investments had fallen sharply, which meant that Robert Tchenquiz was left in substantial negative equity with Kaupthing. The second reason was for Vincent’s own business operations which saw him borrow £100m. He put the shares up as part of a security deal against that loan.

After the collapse of Kaupthing it was taken over by administrators who took a different view to these two business deals with Tchenguiz. The administrators fired the executives dealing with Vincent’s account and upon closer examination of the deals that had been made, the administrators were quite shocked the bank was willing to make the deal on the contractual terms and conditions in place. For instance, there was already a considerable amount of priority creditors who Vincent borrowed money from for his business operations. This meant that other banks such as Deutsche Bank, Merrill Lynch and HBOS, to name a few, were priority creditors above them. This meant the value of security in the holding company’s share, in reality, may have been considerably less than the £222m and £100m they were supposed to be.

The method used to value these loans by the former bosses of Kaupthing also seemed to leave the administrators bewildered. The complex calculations used to value the shares to cover Robert’s negative equity showed the shares being valued at £222m. This was founded on assumptions regarding cash flow which in turn were based on a hundred and fifty years span plus inflation and interest rates within that same period. Vincent argued these calculations where of the norm and was commonly practiced by Oliver Wyman, an actuarial firm.  The administrators, however, also felt that Vincent was not in a financially secure position in 2008 to be offering his brother a helping hand, as Vincent was under pressure from his own business operations.

They stated that by the end of January 2008 the Family Trust companies (both indirectly and directly owned) needed loans to pay off the rising defaults and this could not have been done by refinancing money from any of their existing lenders.  Vincent’s response to this allegation included believing not only was this just the opinion of the administrators, they also failed to take into consideration the global credit crunch.

After Kaupthing collapsed the administrators, about a month later, gave notice on the loan Robert had taken out with the bank. The administrators terminated the loan after it had defaulted, with Grant Thornton becoming the receiver for the property holding company shares.  Conversely, the Tchenguizs believed by appointing receivers their actions had bigger implications for them as other lenders have called time on their loans with several priority creditors calling defaults on their loans.

This culminated in a costly and acrimonious legal battle with the Tchenguiz brothers blaming Kaupthing  for destroying  approximately £1.5bn of value in their business.  The legal battle ended in an out-of-court arrangement and with Vincent putting his ground rent portfolio on the market. It has been stated by the lawyers of Vincent that this was a forced sale triggered by the meddling of the SFO.  The SFO used information supplied by people, such as Grant Thornton, to partition the High Court in March 2011, to search Vincent’s homes and offices. This in turn, according to Vincent’s lawyers, forced the Tchenguiz Family Trust to restructure and sell parts of its core business which could work out to cost £2bn. This was caused by the disruption of key access to credit which alas had an effect on their trading ability.




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