A Notorious Fraud – the Robert Maxwell Farrago

One of the most newsworthy cases involving a Conflict of Interests and a Superannuation (Pension) Fund is that involving the collapse of the Robert Maxwell media empire following his death in controversial circumstances on 5 November 1991.

This case was covered extensively in the media as well as the courts {Bishopsgate Investments Management Ltd v Homan ([1994] EWCA Civ 33} and was the subject of a major report by the Department of Trade and Industry that took a decade to complete and was published in 2001 {DTI Report on Mirror Group Newspapers plc by the Honourable Sir Roger Thomas and Mr Raymond Turner}.

Robert Maxwell had built up a media empire with a mix of private and public companies that is shown in a simplified manner of the following diagram.

Maxwell expanded his media empire too rapidly in an effort to compete with Australia’s Rupert Murdoch who owns News Corporation.  Maxwell borrowed $3 billion to buy the Macmillan Publishing Group in the USA in 1988. Some of his acquisitions incurred large losses and Maxwell resorted to raiding the Pension Fund to prop up Maxwell Communication Corporation, which was part publicly owned and part privately owned by Maxwell.

On the release of the DTI Report 10 years after Maxwell’s death, this is what the “Independent” newspaper had to say:

The inspectors’ report into Robert Maxwell’s stewardship of Mirror Group Newspapers should become a classic. It’s about theft on a grand scale. The more usual term for Maxwell’s activities is fraud, but what is fraud if it is not stealing, carried out by lying and cheating rather than by breaking into somebody’s house? The result is the same. Maxwell systematically plundered both the non-family shareholders in his businesses and the company pension funds”.

Maxwell not only had a Conflict of Interest between his private and public interests, the Trustee company Bishopsgate Investment Management Limited (BIM) Limited was not independent, but was owned by one of Maxwell’s companies.

When Maxwell started to get into financial difficulties he started moving funds from the pension fund into his privately owned companies. This pattern of plundering the pension fund became common practice. At a meeting with trade unions, Maxwell once referred to “his” fund. When this was queried by union officials, he turned to his company secretary and demanded who owned the pension trustee company. He was told that it was ultimately held by his private firm Pergamon Press, as parent company of the Mirror Group Newspapers. Maxwell said: “Exactly. So I own the pension scheme.”

When his media empire finally collapsed it was discovered that   £450 million  (~A$700m in 1991) had been stolen from the employee’s pension fund.

The DTI Report

The official report into Maxwell’s fraud blamed a number parties, with some of the more notable being:

  • Labour peer Lord Donaghue, a Maxwell director, ought to have been able to find out what was going on. But he never asked the obvious questions.
  • Coopers & Lybrand Deloitte accountants “failed to report abuses” to pension fund trustees {Coopers & Lybrand Deloitte are now part of PricewaterhouseCoopers (PwC)}.

The official report released in 2001 found that IMRO, the City watchdog for the fund management industry, repeatedly warned the Securities and Investments Board (SIB), then chief City regulator, to tighten controls on how pension funds were managed shortly before the Maxwell pensions scandal.

The warnings, which had not been made public before the release of the DTI Report, came shortly before it emerged in late 1991 that Robert Maxwell had systematically plundered the Mirror Group Newspapers’ pension fund. An investigation by The Telegraph newspaper in the UK discovered that IMRO had been ordered by SIB and the Department of Trade and Industry to keep the warnings secret after the plundering of the Mirror Group Pension Fund  was uncovered in late 1991.

The issue of the Conflict of Interests of Auditors was also raised in the DTI Report.

Following this scandal, there were many regulatory reforms made in the UK and many of these were later adopted in Australia, however Australia Guardians has on file a case where a Government Regulated Superannuation Fund continued to be raided even after the Superannuation Industry Supervision Act 1993 became law.

The Obligations of Directors of Corporate Trustees

The UK Court of Appeal considered the obligations of the Directors of corporate Trustees in Bishopsgate Investment Management Ltd {in liq] v Maxwell (no.2) [1994] 1 All ER CA 261;[1993] BCLC 814.

Two of Robert Maxwell’s sons, Ian and Kevin, were Directors of the corporate Trustee Bishopsgate Investment Management Ltd as well as Directors of their father’s company. The plaintiff company then in the hands of the Receiver brought proceedings against Ian Maxwell as a Director of the corporate Trustee for a breach of his fiduciary duty in signing various stock transfers whereby shares held by the company as trustee of a number of pension funds were transferred for no consideration to another company controlling his father’s private interests.

The transfers were not authorised by the Board of the corporate Trustee.

The Court of Appeal stated at p 265:

“If a director chooses to participate in the management of the company and exercises powers on its behalf, he owes a duty to act bona fide in the interests of the company. He must exercise the power solely for the purpose for which it is conferred. To exercise the power for another purpose is a breach of fiduciary duty……. Mr Ian Maxwell was in breach of his fiduciary duty because he gave away the company’s assets for no consideration to a private family company of which he was a director. This was prima facie a use of his powers as a director for an improper purpose and in my judgement the burden was upon him to demonstrate the propriety of the transaction.”

Ralph Gibson LJ states at p 269:

“Those allegations can be summarised in the simple statement that Mr Ian Maxwell and Mr Kevin Maxwell by signing share transfers as directors misapplied the property of the plaintiff company, by applying it for a purpose to which the company could not lawfully apply it. It that is proved, the directors responsible must replace the property or make good the loss and it matters not that in so acting they acted honestly: see 7(1) Halsbury’s Laws (4th edn reissue) para 645 and the cases there cited.

The liability of directors participating in breaches of trust is joint and several. ….Upon the evidence before the it was, I think, clearly shown that the transfer of these shares constituted misapplication of the company’s property and Mr Ian Maxwell made no attempt to show that the transactions were even arguably for the benefit of the company.”

Also refer to:

Re an Inquiry into Mirror Group Newspapers plc [2000] Ch 194

Macmillian Inc v Bishopgate Investment Trust plc (No. 3) [1996] WLR 387

Re Maxwell Communications Corp plc (No. 2)  [1994] 1 BCLC 1

Bishopsgate Investment Management Ltd v Maxwell [1993] Ch 1,


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