Polly Peck
Encyclopedia
Polly Peck International (PPI) was a small and barely profitable United Kingdom
textile company
which expanded rapidly in the 1980s and became a constituent of the FTSE 100 Index
before it collapsed in 1990 with the then colossal debts of £1.3bn. The Polly Peck scandal, and Chief Executive Asil Nadir
's escape, along with a number of corporate scandals, spurred on reform of UK company law, leading to the early versions of the UK Corporate Governance Code. On 26 August 2010 Nadir returned to the UK to be charged on certain terms.
, a Turkish Cypriot, bought 58% of the company for £270,000.
Nadir took over as Chief Executive on 7 July 1980. On 8 July 1980 Polly Peck launched a rights issue
to raise £1.5m of new capital for investments abroad.
In 1982 Nadir began the early ventures. These included Uni-Pac Packaging Industries Ltd, Voyager Kibris Ltd, and Sunzest Trading Ltd, three companies incorporated in the Turkish Republic of Northern Cyprus.
Uni-Pac was a corrugated box manufacturer and packaging company formed to take advantage of surplus citrus fruit being grown in Cyprus, which was forecast to produce a minimum of £2.1 million profit. Voyager Kibris Ltd was used to purchase the Sheraton Voyager Hotel in Turkey and to build resort hotels in Northern Cyprus.
In September 1982 Nadir acquired a major stake of 57% in a textile trader, Cornell, whose shares were considered penny shares
. Cornell rose from 26p to over 100p as soon as Nadir's interest was confirmed. Nadir had Cornell sell a rights issue, raising £2.76 million. This capital, plus a further £6 million from Polly Peck, was used to set up the 'Niksar' mineral water bottling plant in Turkey. Niksar subsequently sold an estimated 100 million bottles of water to the Middle East
.
In 1983, Nadir also began expanding PPI's textile business by purchasing a 76 percent stake in Santana Inc. in the United States, and a majority stake in InterCity PLC in the UK. Nadir then extended PPI's textile operations into the Far East
, acquiring a majority stake in Impact Textile Group in 1986, and by increasing PPI's existing stake in Shuihing Ltd. to 90 percent. In 1987 PPI acquired a majority interest in Palmon (UAE) Ltd., a manufacturer of casual shirts.
In April 1984, PPI also diversified into the electronics
business by acquiring 82 percent ownership of Vestel Electronics
, one of the largest publicly traded companies in Turkey
. Vestel manufactured colour televisions, Betamax
video recorders
, air conditioning units, audio equipment, microwave ovens, and washing machines. PPI's success in the electronics business was substantially enhanced in early 1986 when Akai
of Japan decided to join Ferguson, Salora, and GoldStar
as licensors to Vestel. Subsequently, PPI also acquired housewares manufacturer Russell Hobbs
.
By 1989 Polly Peck had become an international player by acquiring a 51% majority stake in Sansui (a Japanese electronics company on hard times). This was one of the first foreign acquisitions of a major Japanese company listed on the Tokyo Stock Exchange. Also in 1989, Polly Peck bought the former Del Monte fresh fruit division for $875 million from RJR Nabisco
, which had previously acquired it. Polly Peck then gained the ultimate accolade of being admitted to the FTSE 100 Share Index in 1989.
By 1990 five firms had emerged as the dominant actors in fresh fruits and vegetables in western Europe and North America. These were the ex-banana giants: Chiquita
, Dole
, and Del Monte Tropical; and the two new upstarts: Polly Peck International and Albert Fisher. The move was part of a larger planned restructuring under which Polly Peck developed its electronics, foods and leisure businesses into three largely independent companies.
In less than ten years, under this growth-by-acquisition strategy, PPI's market capitalization went from only £300,000 to £1.7 billion at its peak. It became a holding company for a world wide group of over 200 direct and indirect subsidiary companies.
With pre-tax profits of £161.4 million, net assets of £845 million and 17,227 employees, the Polly Peck group was one of Britain's top one hundred quoted companies. Polly Peck and its subsidiaries were the largest employer in northern Cyprus (after the state) with 7,500 employees there.
In 1990, Polly Peck's board became so worried about the money transferred into Northern Cyprus that it confronted Mr Nadir and asked him to return it. He refused.
The accounting regulators found that the Inland Revenue had been investigating transactions by a Swiss nominee company, Fax Investments, in shares in Polly Peck and another company run by Mr Nadir's son, Birol. It found a trail of transactions which indicated that money had come from Polly Peck businesses in northern Cyprus to Fax.
When confronted about these deals, Mr Nadir told Polly Peck's auditors, Stoy Hayward, that one of the group's Northern Cyprus businesses "provided what were in effect personal banking services for certain Turkish and [Northern Cypriot] residents". The auditors described this arrangement as "extremely unwise transactions". On top of these massive money transfers and "unwise transactions", the regulators found that some of Polly Peck's assets had been secretly registered in Mr Nadir's name. These were all in Northern Cyprus and had a net book value of £25.5m in 1989. In addition the Didima Hotel development in Northern Cyprus, valued at £15.5m, and £6.7m worth of other buildings, had no registered owner. Nadir said he was holding the assets "on trust" for Polly Peck businesses.
On 20 September 1990, the Serious Fraud Office
(SFO) raided South Audley Management, the company that controlled the Nadir family interests. The raid triggered a run on Polly Peck shares with the price practically in free fall.
Trading in the company’s shares was suspended on 20 September 1990. PPI’s problems became apparent from the structure of the group’s debts. The company had over £100 million in short-term revolving lines of credit. Even more debt consisted of long term loans for which Nadir had offered Polly Peck’s shares as collateral
.
On 29 October 1990 an ex-parte application for Provisional Liquidation was granted at the High Court in London to the London Branch of the National Bank of Canada. The Directors of Polly Peck met on 31st October 1990 at their London HQ and undertook a course of action leading to Voluntary Administration.
A considerable number of antiques were located at the HQ offices of the company in Berkeley Square, London. The book value attributed to these was around £6 million, but upon later inspection and independent valuation the total sum was stated at approximately £2.5 to £3 million.
Ultimately the company collapsed, and charges were brought against Asil Nadir for 70 charges of false accounting and the theft, which he denied.
In 1991, Polly Peck Group transferred all of its Vestel Electronics shares to one of its subsidiaries, Collar Holding BV, which was based in the Netherlands. Following the collapse of the Polly Peck Group, PPI was placed in administration. In November 1994, Ahmet Nazif Zorlu acquired PPI from the administrator by buying the entire share capital of Collar Holding BV, which at the time held 82% of the Polly Peck's issued share capital.
. He left on a light aircraft to France, where he flew on to Turkish Cyprus, which has no extradition agreement with Britain and until 26 August 2010 he remained a fugitive in northern Cyprus, which is only recognised by Turkey. Peter Dimond, the pilot who flew him out of Britain, was convicted of aiding a fugitive, but the conviction was quashed once it was determined that the bail had lapsed. In 1996, Mr Nadir's aide Elizabeth Forsyth was convicted of laundering £400,000 stolen from Polly Peck and sentenced to five years. Ten months later, she too was freed by the Appeal Court.
A government minister, Michael Mates
, resigned in 1993 following persistent press coverage of his close links to Asil Nadir which had led to Mates writing to the attorney general questioning the handling of the investigation by the Serious Fraud Office. Asil Nadir has persistently claimed that the charges that he stole more than £30m from the company are "baseless" and has claimed that the SFO abused its powers, making a fair trial impossible. In 2002 the accounting disciplinary body, the Joint Disciplinary Tribunal, fined Stoy Hayward £75,000 for its role as group auditor to Polly Peck. Erdal & Co, the north Cypriot accounting firm was also fined for its audit of the north Cypriot subsidiaries of Polly Peck in 1988 and 1999. In July 2010 it was reported that Asil Nadir intended to seek bail to return to the United Kingdom to face the 66 counts of theft.
Over the years his business interests have shrunk. His hotels were sold to pay off tax debts in 1994, his bank Endustri was taken over by the Central Bank of Northern Cyprus in 2009, and Kibris newspaper, a TV and radio station are all that remains of his known empire.
On 29 July 2010 Asil Nadir began legal proceedings to be granted bail in the UK, allowing him to return. The Serious Fraud Office said if Mr Nadir did return to the UK he would be put on trial for 66 counts of theft. Having received an undertaking that he would once again be given bail but would be kept under electronic surveillance, he returned to the UK on 26 August 2010.
On Friday 3rd September 2010, Asil Nadir was put under a midnight to 6am curfew, an electronic tag and has been made to surrender his passport. His trial is expected to begin next year.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
textile company
Textile industry
The textile industry is primarily concerned with the production of yarn, and cloth and the subsequent design or manufacture of clothing and their distribution. The raw material may be natural, or synthetic using products of the chemical industry....
which expanded rapidly in the 1980s and became a constituent of the FTSE 100 Index
FTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....
before it collapsed in 1990 with the then colossal debts of £1.3bn. The Polly Peck scandal, and Chief Executive Asil Nadir
Asil Nadir
Asil Nadir is a Turkish Cypriot businessman, who was Chief executive of Polly Peck, which he took over as a small textile company, growing it during the 1980s to become one of the United Kingdom's top 100 FTSE-listed companies, with interests in consumer electronics, fruit distribution and packaging...
's escape, along with a number of corporate scandals, spurred on reform of UK company law, leading to the early versions of the UK Corporate Governance Code. On 26 August 2010 Nadir returned to the UK to be charged on certain terms.
The rapid boom years
Early in 1980 Restro Investments, a company controlled by Asil NadirAsil Nadir
Asil Nadir is a Turkish Cypriot businessman, who was Chief executive of Polly Peck, which he took over as a small textile company, growing it during the 1980s to become one of the United Kingdom's top 100 FTSE-listed companies, with interests in consumer electronics, fruit distribution and packaging...
, a Turkish Cypriot, bought 58% of the company for £270,000.
Nadir took over as Chief Executive on 7 July 1980. On 8 July 1980 Polly Peck launched a rights issue
Rights issue
A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from...
to raise £1.5m of new capital for investments abroad.
In 1982 Nadir began the early ventures. These included Uni-Pac Packaging Industries Ltd, Voyager Kibris Ltd, and Sunzest Trading Ltd, three companies incorporated in the Turkish Republic of Northern Cyprus.
Uni-Pac was a corrugated box manufacturer and packaging company formed to take advantage of surplus citrus fruit being grown in Cyprus, which was forecast to produce a minimum of £2.1 million profit. Voyager Kibris Ltd was used to purchase the Sheraton Voyager Hotel in Turkey and to build resort hotels in Northern Cyprus.
In September 1982 Nadir acquired a major stake of 57% in a textile trader, Cornell, whose shares were considered penny shares
Penny stock
In the United States, penny stocks are common shares of small public companies that trade at less than $1.00. In some countries, similar shares of stock are known as cent stocks.-Concerns for investors:...
. Cornell rose from 26p to over 100p as soon as Nadir's interest was confirmed. Nadir had Cornell sell a rights issue, raising £2.76 million. This capital, plus a further £6 million from Polly Peck, was used to set up the 'Niksar' mineral water bottling plant in Turkey. Niksar subsequently sold an estimated 100 million bottles of water to the Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
.
In 1983, Nadir also began expanding PPI's textile business by purchasing a 76 percent stake in Santana Inc. in the United States, and a majority stake in InterCity PLC in the UK. Nadir then extended PPI's textile operations into the Far East
Far East
The Far East is an English term mostly describing East Asia and Southeast Asia, with South Asia sometimes also included for economic and cultural reasons.The term came into use in European geopolitical discourse in the 19th century,...
, acquiring a majority stake in Impact Textile Group in 1986, and by increasing PPI's existing stake in Shuihing Ltd. to 90 percent. In 1987 PPI acquired a majority interest in Palmon (UAE) Ltd., a manufacturer of casual shirts.
In April 1984, PPI also diversified into the electronics
Electronics
Electronics is the branch of science, engineering and technology that deals with electrical circuits involving active electrical components such as vacuum tubes, transistors, diodes and integrated circuits, and associated passive interconnection technologies...
business by acquiring 82 percent ownership of Vestel Electronics
Vestel Elektronik
Vestel is one of Turkey’s largest home and professional appliances manufacturing companies consisting of 18 companies specialised in electronics, major appliances and information technology, which was formed by Turkish Cypriot Asil Nadir in 1975....
, one of the largest publicly traded companies in Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
. Vestel manufactured colour televisions, Betamax
Betamax
Betamax was a consumer-level analog videocassette magnetic tape recording format developed by Sony, released on May 10, 1975. The cassettes contain -wide videotape in a design similar to the earlier, professional wide, U-matic format...
video recorders
Videocassette recorder
The videocassette recorder , is a type of electro-mechanical device that uses removable videocassettes that contain magnetic tape for recording analog audio and analog video from broadcast television so that the images and sound can be played back at a more convenient time...
, air conditioning units, audio equipment, microwave ovens, and washing machines. PPI's success in the electronics business was substantially enhanced in early 1986 when Akai
Akai
Akai is a consumer electronics brand, founded by Saburo Akai as , a Japanese manufacturer in 1929. It is now headquartered in Singapore as a subsidiary of Grande Holdings, a Hong Kong-based conglomerate, which also owns the formerly Japanese brands Nakamichi and Sansui. The Akai brand is now used...
of Japan decided to join Ferguson, Salora, and GoldStar
GoldStar
GoldStar was an electronics company established in 1958. The corporate name was changed to LG Electronics and LG Cable in 1995 after merging with Korean competitor Lucky...
as licensors to Vestel. Subsequently, PPI also acquired housewares manufacturer Russell Hobbs
Russell Hobbs
Russell Hobbs is a manufacturer of household appliances based in Failsworth, Greater Manchester, England.-Formation:After working with REME in World War II and leaving in 1947 as a Major, Bill Russell , from High Wycombe, joined Morphy Richards and helped to design the pop-up toaster, the electric...
.
By 1989 Polly Peck had become an international player by acquiring a 51% majority stake in Sansui (a Japanese electronics company on hard times). This was one of the first foreign acquisitions of a major Japanese company listed on the Tokyo Stock Exchange. Also in 1989, Polly Peck bought the former Del Monte fresh fruit division for $875 million from RJR Nabisco
RJR Nabisco
RJR Nabisco, Inc., was an American conglomerate formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company. RJR Nabisco was purchased in 1988 by Kohlberg Kravis Roberts & Co...
, which had previously acquired it. Polly Peck then gained the ultimate accolade of being admitted to the FTSE 100 Share Index in 1989.
By 1990 five firms had emerged as the dominant actors in fresh fruits and vegetables in western Europe and North America. These were the ex-banana giants: Chiquita
Chiquita Brands International
Chiquita Brands International Inc. is an American producer and distributor of bananas and other produce, under a variety of subsidiary brand names, collectively known as Chiquita. Other brands include Fresh Express salads, which it purchased from Performance Food Group in 2005...
, Dole
Dole Food Company
Dole Food Company, Inc. is an American-based agricultural multinational corporation headquartered in Westlake Village, California. The company is the largest producer of fruits and vegetables in the world, operating with 74,300 full-time and seasonal employees who are responsible for over 300...
, and Del Monte Tropical; and the two new upstarts: Polly Peck International and Albert Fisher. The move was part of a larger planned restructuring under which Polly Peck developed its electronics, foods and leisure businesses into three largely independent companies.
In less than ten years, under this growth-by-acquisition strategy, PPI's market capitalization went from only £300,000 to £1.7 billion at its peak. It became a holding company for a world wide group of over 200 direct and indirect subsidiary companies.
With pre-tax profits of £161.4 million, net assets of £845 million and 17,227 employees, the Polly Peck group was one of Britain's top one hundred quoted companies. Polly Peck and its subsidiaries were the largest employer in northern Cyprus (after the state) with 7,500 employees there.
Attempt to take the company private
In August 1990 Nadir came to the view that the company was undervalued and then announced that he was taking it private. Almost as suddenly later that month he announced that he had changed his mind.Collapse
An independent investigation by the Accountants' Joint Disciplinary found that during 1988 Polly Peck made 24 separate payments to its subsidiaries in Turkey and northern Cyprus, totaling some £58m. The following year Polly Peck paid out £141m in 64 different deals. The report said that "Mr Nadir was able to initiate transfers of funds out of [Polly Peck's] London bank accounts without question or challenge. Further ... he was able to conceal his actions until such time as the cumulative cash outflow became so great that the group was unable to meet its obligations to its bankers."In 1990, Polly Peck's board became so worried about the money transferred into Northern Cyprus that it confronted Mr Nadir and asked him to return it. He refused.
The accounting regulators found that the Inland Revenue had been investigating transactions by a Swiss nominee company, Fax Investments, in shares in Polly Peck and another company run by Mr Nadir's son, Birol. It found a trail of transactions which indicated that money had come from Polly Peck businesses in northern Cyprus to Fax.
When confronted about these deals, Mr Nadir told Polly Peck's auditors, Stoy Hayward, that one of the group's Northern Cyprus businesses "provided what were in effect personal banking services for certain Turkish and [Northern Cypriot] residents". The auditors described this arrangement as "extremely unwise transactions". On top of these massive money transfers and "unwise transactions", the regulators found that some of Polly Peck's assets had been secretly registered in Mr Nadir's name. These were all in Northern Cyprus and had a net book value of £25.5m in 1989. In addition the Didima Hotel development in Northern Cyprus, valued at £15.5m, and £6.7m worth of other buildings, had no registered owner. Nadir said he was holding the assets "on trust" for Polly Peck businesses.
On 20 September 1990, the Serious Fraud Office
Serious Fraud Office (UK)
The Serious Fraud Office is an independent UK Government department that investigates and prosecutes serious or complex fraud and corruption...
(SFO) raided South Audley Management, the company that controlled the Nadir family interests. The raid triggered a run on Polly Peck shares with the price practically in free fall.
Trading in the company’s shares was suspended on 20 September 1990. PPI’s problems became apparent from the structure of the group’s debts. The company had over £100 million in short-term revolving lines of credit. Even more debt consisted of long term loans for which Nadir had offered Polly Peck’s shares as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
.
On 29 October 1990 an ex-parte application for Provisional Liquidation was granted at the High Court in London to the London Branch of the National Bank of Canada. The Directors of Polly Peck met on 31st October 1990 at their London HQ and undertook a course of action leading to Voluntary Administration.
A considerable number of antiques were located at the HQ offices of the company in Berkeley Square, London. The book value attributed to these was around £6 million, but upon later inspection and independent valuation the total sum was stated at approximately £2.5 to £3 million.
Ultimately the company collapsed, and charges were brought against Asil Nadir for 70 charges of false accounting and the theft, which he denied.
In 1991, Polly Peck Group transferred all of its Vestel Electronics shares to one of its subsidiaries, Collar Holding BV, which was based in the Netherlands. Following the collapse of the Polly Peck Group, PPI was placed in administration. In November 1994, Ahmet Nazif Zorlu acquired PPI from the administrator by buying the entire share capital of Collar Holding BV, which at the time held 82% of the Polly Peck's issued share capital.
Leaving the UK and returning
Nadir left the UK just after his £3.5 million bail had lapsed, while the detectives who were watching him were off duty to save overtime pay on a bank holidayBank Holiday
A bank holiday is a public holiday in the United Kingdom or a colloquialism for public holiday in Ireland. There is no automatic right to time off on these days, although the majority of the population is granted time off work or extra pay for working on these days, depending on their contract...
. He left on a light aircraft to France, where he flew on to Turkish Cyprus, which has no extradition agreement with Britain and until 26 August 2010 he remained a fugitive in northern Cyprus, which is only recognised by Turkey. Peter Dimond, the pilot who flew him out of Britain, was convicted of aiding a fugitive, but the conviction was quashed once it was determined that the bail had lapsed. In 1996, Mr Nadir's aide Elizabeth Forsyth was convicted of laundering £400,000 stolen from Polly Peck and sentenced to five years. Ten months later, she too was freed by the Appeal Court.
A government minister, Michael Mates
Michael Mates
Michael John Mates is a Conservative Party politician who was the Member of Parliament for the constituency of East Hampshire from 1974 to 2010.He has been a member of the Privy Council since February 2004.-Education:...
, resigned in 1993 following persistent press coverage of his close links to Asil Nadir which had led to Mates writing to the attorney general questioning the handling of the investigation by the Serious Fraud Office. Asil Nadir has persistently claimed that the charges that he stole more than £30m from the company are "baseless" and has claimed that the SFO abused its powers, making a fair trial impossible. In 2002 the accounting disciplinary body, the Joint Disciplinary Tribunal, fined Stoy Hayward £75,000 for its role as group auditor to Polly Peck. Erdal & Co, the north Cypriot accounting firm was also fined for its audit of the north Cypriot subsidiaries of Polly Peck in 1988 and 1999. In July 2010 it was reported that Asil Nadir intended to seek bail to return to the United Kingdom to face the 66 counts of theft.
Over the years his business interests have shrunk. His hotels were sold to pay off tax debts in 1994, his bank Endustri was taken over by the Central Bank of Northern Cyprus in 2009, and Kibris newspaper, a TV and radio station are all that remains of his known empire.
On 29 July 2010 Asil Nadir began legal proceedings to be granted bail in the UK, allowing him to return. The Serious Fraud Office said if Mr Nadir did return to the UK he would be put on trial for 66 counts of theft. Having received an undertaking that he would once again be given bail but would be kept under electronic surveillance, he returned to the UK on 26 August 2010.
On Friday 3rd September 2010, Asil Nadir was put under a midnight to 6am curfew, an electronic tag and has been made to surrender his passport. His trial is expected to begin next year.
See also
- UK company law
- UK corporate governance code
- Polly Peck International Plc v The Marangos Hotel Company Ltd (No 2) [1998] EWCA Civ 789, [1998] 3 All ER 812
- Polly Peck v Nadir [1992] EWCA Civ 3, [1992] 4 All ER 769
External links
- Polly Peck auditors fined The Guardian, 1 May 2003
- Suit against Nadir
- THE POLLY PECK AFFAIR Original auditors for the collapse of Polly Peck International
- POLLY PECK - ERDAL & CO PARTNERS The Accountants’ Joint Disciplinary Scheme, 30 April 2003; Press Notice - Auditors in Cyprus investigate Polly Peck