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Government-rescued Ketech In Pension Row

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http://www.telegraph.co.uk/finance/newsbys...ension-row.html

The revelation follows an investigation by The Daily Telegraph into the financial affairs of Bedford-based KeTech Group in the months leading up to its selection – ahead of hundreds of other companies – as the first recipient of investment under Lord Mandelson's Capital for Enterprise fund.

The Business Secretary visited the engineering and electronics company's Nottingham factory on the day the £2m investment was unveiled in August. "You are not a struggling company. You are a successful company," he said. "You need capital and that is the point [of this fund]."

However, it has emerged that KeTech owes a significant amount of tax and has a "backlog" of creditors. It has also emerged that one of its subsidiaries, software engineering company Key Radio Systems, based in Berkshire, failed to pass on pension contributions taken from the salaries of its staff.

Documents seen by The Daily Telegraph show that Key Radio employee and employer contributions were not paid for at least four months.

Key Radio, which was making losses, was placed into administration by KeTech on July 31 and its workforce made redundant without notice.

The refinancing of KeTech, which made £1m of profits on £16m of sales last year, took place the next day.

The fund managers investing the Capital for Enterprise fund said that the closure of Key Radio was a condition of the deal.

Chris Allner, head of private equity at Octopus Capital, one of two fund managers appointed by the Business Department to invest the £75m fund, said: "In respect of us investing taxpayer and bank money, we are comfortable that we did as much as we could to uncover all the potential and actual liabilities of the [KeTech] group."

Key Radio did not feature in its due diligence. "We did not have to understand that business. It was put into administration before the investment," Mr Allner said.

A spokesman for the Department for Business declined to comment on the investigation into the missing pension money but said the investment in KeTech would "help secure the future of more than 130 jobs which were at risk".

He added: "In this instance the fund managers identified the need for the company to strengthen its financial management and action has already been taken by KeTech."

Due diligence!!!

Did Mandy get taken out on a slap up meal?

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http://www.telegraph.co.uk/finance/comment...escue-cash.html

Watching Lord Mandelson as he volunteered to be tested for drugs was one thing – "there's no chance of drugs as far as I am concerned" (the test came back clean). But seeing him peer into a police "Trap Car" at KeTech Group's Nottingham factory, it was hard to ignore that nagging feeling that the Business Secretary was walking into yet another controversy.

On the face of it, the £2m of public and high street bank money invested in KeTech Group for a "significant minority stake" was excellent news with which to be associated.

That it had taken eight months between the launch of the £75m Capital for Enterprise fund and its first investment was nothing; it could be dismissed with the wave of a hand. As the Business Secretary rightly pointed out, the money made a massive difference to KeTech and its 120 staff.

But peering beyond the presentation, the KeTech deal has exposed wrongdoing and raised a series of questions for the Government, if it is to continue to pursue the strategy of bailing out private companies with public money.

The discovery that staff and company pension contributions were not being passed on at one of KeTech's subsidiaries, Key Radio Systems, is indefensible.

Amazingly, I'm told that such pension payment "blips" can happen within small groups of companies, where head cash is being moved around to meet different demands.

In the good times, shortfalls "are managed out" as one corporate financier put it. By law, pension providers can wait three months before asking why contributions have ceased.

But we're not in good times. It appears that as the pension arrears built up, Key Radio could not afford to pass on the money as it no longer had it. Key Radio's administrators are now investigating what happened.

For the Government, the immediate question is whether this state-backed fund should alter its investment remit. Octopus Capital is working to a purely commercial remit – to identify solid businesses starved of bank debt that can be turned around and could generate a return for the taxpayer in the future.

In principle, this is sound. I have real concerns that public venture funds with job creation and economic development as well as financial return remits are ineffectual at best and, at worst, damaging the private sector.

As some readers have commented on my blog, imagine owning and running a successful business, which still has bank support. Then you discover that your poorly run rival has not only been bailed out with public funds but it can now undercut you on price because they have been incentivised with cheap/free money to retain more staff than they actually need.

More at the link.

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http://www.telegraph.co.uk/finance/newsbys...han-feared.html

It has emerged that KeTech’s finance director Graham Bawden, who resigned as part of the finance deal, was aware of the pensions arrears – which also included shortfalls at KeTech subsidiaries that continue to trade. Until now it had been thought that the arrears only extended to one of KeTech’s subsidiaries, Berkshire-based Key Radio Systems. This business was put into administration on July 31, the day before the deal was agreed with Lord Mandelson’s £75m Capital for Enterprise Fund.

However, Steve Berg, KeTech Group’s new finance director, said that staff pension shortfalls at “several†subsidiaries were being addressed “as part of the refinancingâ€.

“There were a number of shortfalls in the business. They are being or have been made good,†he said.

This admission will put further pressure on fund manager Octopus Capital, which was appointed by the Business Department’s finance arm, to explain why it had spotted pension shortfalls at some KeTech subsidiaries but not at Key.

The Pensions Regulator has told former staff of Key that they should receive their missing pension payments from either the sale of the company’s remaining assets by the administrator or through the Government’s Redundancy Payments Office.

It has also emerged that Mr Bawden and Mr Berg were aware of the pensions arrears before the refinancing deal with fund managers’ Octopus was agreed.

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http://www.telegraph.co.uk/finance/newsbys...ion-system.html

If ever there was a game of musical chairs, this must surely be it. The case of the missing Key Radio Systems pension contributions has highlighted a rather startling gap in the regulation of UK pension schemes.

Staff at the company, whose parent group, KeTech, was rescued by Lord Mandelson’s taxpayer-funded venture, only discovered that four months’ worth of payments were missing from their group personal pension (GPP) after their employer was put into administration in July.

In spite of decades of agonising over pensions regulation – triggered in no small part by Robert Maxwell’s infamous plundering of the Mirror Group pension scheme – it appears there is still little means of redress for members of non final-salary pensions where employers go bust leaving pension contributions unpaid.

While a final salary – or defined benefit – pension scheme would be covered by the Pension Protection Fund, established in 2005 to oversee payments to members of these schemes where companies had gone bust, there is no such help for defined contribution (DC) schemes and GPP schemes. Trust-based DC schemes benefit from powers the Pensions Regulator has to monitor trustees, but GPPs do not have trustees. To make matters worse, while there is a clear distinction between occupational pensions, which are regulated by the Pensions Regulator, and personal pensions, overseen by the Financial Services Authority, GPPs fall into a sort of hinterland between the two. They are meant to be regulated by both, but the danger is that they end up being properly monitored by neither.

More at the link.

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