Leading property industry figures are among a swathe of public company directors who pledged around £680 million (approx. €665 mln.) worth of shares as collateral against personal loans.
More than 50 companies have disclosed shared-backed loans in the two weeks since the Financial Services Authority declared an amnesty on such deals for Official List companies which expired at the end of last week.
Co-founder of Prestbury and a director of Domino's pizza Nigel Wray has used nearly £38 million worth of Domino's shares to fund personal debts. Tim Martin, the Founder and Chairman of the JD Wetherspoon pub chain has pledged more than £11 million of his company's shares to Royal Bank of Scotland.
British Land revealed that former Savills Chief Executive and Non-Executive Director Aubrey Adams had pledged 10,000 BL shares as security on a loan with Lloyds TSB.
Town Centre Securities said two of its directors had also disclosed the use of company shares as collateral against personal loans. Edward Ziff had pledge 312,622 shares held by the trustees of Will Trust No. 30 against a loan made to him in August 1993. Similarly, Michael Ziff pledged 722,551 shares held by the same trust against a personal loan made in the same year.
Mountview Estates Chairman Duncan Sinclair has also disclosed he had pledged 400,000 shares to Barclays Bank as security for a personal bank loan and overdraft.
Tim Dolan, a partner at international law firm Pinsent Masons, said: "Companies are now taking this issue very seriously and are insisting directors lay everything out on the table. This is even more important now that the FSA's amnesty for Official List companies has ended."
He explained: "There is an obligation on the relevant director of an Official List company to disclose equity-backed loan deals to the company within four days of making the pledge. The company must then inform the market immediately. Failure to do so could mean an unlimited fine for both the director and the company."
Problems first emerged seven weeks ago when David Ross, co-founder of Carphone Warehouse, admitted that he had pledged almost 14% of the mobile phones retailer to JP Morgan as security on commercial property loans.
When JP Morgan called in the loans in December it was discovered Ross had not declared his use of his shares worth up to £120m as collateral. He was forced to resign from his directorships of Carphone Warehouse, self-storage operator Big Yellow and National Express.
Two weeks later after treasurer of the Conservative Party Michael Spencer revealed he had pledged more than £300m worth of money broker Icap's shares FSA rules were accused of being vague. This forced the regulator to clarify the situation by saying that all such deals needed to be disclosed. It then gave the market until January 23 to come clean.
Source: Brown Lloyd James Financial