DTI report slams CC over Mirror Group float

Clifford Chance takes brunt of criticism; Linklaters’ responsibility ‘limited’


Clifford Chance has been heavily criticised by the Department of Trade and Industry (DTI) report into Robert Maxwell’s business empire for its part in producing an “inaccurate and misleading” float prospectus.

The firm is one of a host of City institutions to come under fire in the report, which was published on Friday (30 March).

The report focuses on the £210m flotation of Mirror Group Newspapers (MGN) in 1991. It states that MGN “was not suitable for listing” and that the “prospectus issued was materially inaccurate and misleading”.

Coopers & Lybrand Deloitte (now part of PricewaterhouseCoopers), Clifford Chance, Linklaters & Paines (now Linklaters & Alliance), Samuel Montagu & Co (now part of HSBC), Salomon Brothers International and Smith New Court Securities were advisers on the listing. They were paid a total of £9m for their services.

Clifford Chance was appointed during the float. Linklaters was instructed by merchant bank Samuel Montagu.

According to the report, Clifford Chance’s main function was “to ensure that the articles of the company were appropriate for a listed company, to advise and assist in the drafting of the prospectus, to carry out certain investigative work without duplicating the work of the reporting accountants, and to carry out the task of verifying what was contained in the prospectus”.

Linklaters’ role was to prepare “legal documentation that had to be agreed between the sponsoring bank and the company and its directors”. It had to be satisfied, on behalf of Samuel Montagu, that Clifford Chance’s role was being properly carried out.

It is on this point that the report mentions Linklaters, saying it “failed to identify the incorrect impression in its review of the work of Clifford Chance”, although it says that Linklaters’ responsibility was limited.

Of the two firms, Clifford Chance receives the greatest criticism. Although the report finds that MGN was responsible for the failure to make the recommended disclosures, it also says that the company was entitled to rely on the “advisers of high reputation”.

The report claims that Clifford Chance failed in its duty to fully investigate the way the company was run. The firm has argued that at the time it was not practice to read board minutes to achieve understanding.

But the report says: “We have reached a different conclusion on the evidence as to the best practice in the City; they should have read the board minutes of MGN.

“The verification work carried out by Clifford Chance was defective in failing to identify that the description of the board gave an incorrect impression [in the prospectus].”

A host of City firms were involved with the report, either as MGN-related advisers, interviewees or as interviewee advisers.

Other firms interviewed include Allen & Overy, Ashurst Morris Crisp, Freshfields (now Freshfields Bruckhaus Deringer, Nicholson Graham & Jones and Titmuss Sainer Dechert (now Dechert). Boodle Hatfield, Denton Wilde Sapte, Eversheds and Theodore Goddard were among those instructed by the interviewees. Slaughter and May and Sullivan & Cromwell advised Goldman Sachs, and Clifford Chance litigation partner John Potts represented his partners.

As well as Clifford Chance and the other City institutions involved, MGN board members were heavily criticised, including ex-Slaughter and May partner Sir Robert Clark.

But Maxwell’s son Kevin Maxwell was one of the most heavily criticised figures. After his father’s death, Maxwell and his brother Ian were investigated by the Serious Fraud Office (SFO) and were acquitted. But the report said that Kevin’s behaviour was “inexcusable”. Gouldens and Peters & Peters both advised the Maxwell brothers during the course of the report.

A series of recommendations have been put forward on the basis of the report’s findings. These include a requirement for directors to include, in particular, a “fair presentation” of the risks and benefits of buying shares at the time of an initial public offering (IPO).

The report also recommends “that the listing rules be changed to make more detailed requirements in relation to both pension funds and financial controls”.

In a statement, Linklaters says: “Linklaters acted as solicitor to the issuer, merchant bank Samuel Montagu. We did not act for Robert Maxwell and we believe we took all appropriate action and gave the work that was expected of us as solicitor to Samuel Montagu.” It declines to discuss the matter further.

Clifford Chance head of corporate David Childs says: “We continue to believe that we acted in a highly professional manner. We very much regret that we were involved in the whole matter but there was very little criticism of Clifford Chance in the report.” He declines to discuss the matter further.

All criticism of Linklaters and Clifford Chance was concerned with their role in the IPO and does not refer to the firms in connection with the pension fund theft.