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Last Updated: Tuesday, 7 November 2006, 13:49 GMT
Q&A: The Farepak hamper collapse
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For Farepak customers, Christmas has become more of a nightmare
The collapse of Christmas hamper firm Farepak has cost thousands of families their annual savings.

There have been pledges of help and an inquiry into what went wrong, though it now looks unlikely that any of the savers will get their money back.

MPs have called the Farepak problem a national tragedy and emergency.

How did the business work?

Farepak collected money from clients on a monthly basis throughout the year and then would issue vouchers that could be redeemed at some of the UK's largest retailers, such as Argos and Woolworths.

Clients could also buy hampers of food.

It allowed people to spread out their end-of-year payments, and relied on retailers trusting clubs such as Farepak to settle up the bill for their vouchers after Christmas had passed.

What triggered the collapse?

Earlier this year, there was a change in the way Farepak and other Christmas clubs had to run their business after a voucher firm went bust owing retailers more than 50m.

Instead of extending credit for the vouchers, High Street stores now wanted to be paid up front, analysts said.

This significantly changed the way that Farepak was run and the amount of money it needed to operate.

Farepak's parent company European Home Retail (EHR) said it would need to increase its borrowings, though this proved difficult to arrange and the company announced funding problems earlier this year.

EHR already had debts stemming from a number of problematic acquisitions.

So what went wrong?

According to reports, Farepak's bank HBOS, which was formed after a merger between Halifax and Bank of Scotland, was not willing to accept a new borrowing and business plan and called in the company's overdraft.

Halifax said that it had "shown great flexibility in recent months" and that it had "accommodated the company on several occasions to allow management every opportunity to find a solution to the group's financing challenge".

Despite reassurances that savers' money was safe, and the fact that Farepak was still accepting payments from customers, the administrators were called in last month.

Farepak customers have lost about 400 each on average, though some have lost closer to 2,000.

Analysts have argued that the firm may have kept quiet about its problems because it was confident of finding a solution, that may have even included selling the business.

Was Farepak a fly-by-night firm?

Far from it. The Swindon-based company had run a Christmas club and hamper business since 1968, and had as many as 150,000 clients, many of whom had used the firm for a number of years.

Farepak was founded by Bob Johnson, whose son Nick Gilodi-Johnson has been running the business.

EHR was chaired by Sir Clive Thompson, a former Rentokil chairman and president of the Confederation of British Industry.

Farepak and EHR were formerly known as Kleeneze.

Are people angry?

Very much so, and what has raised heckles the most are accusations that Farepak continued to accept payments from customers even though it knew it was in trouble in order to pay down some of its overdraft.

Some reports have estimated that Farepak's parent firm EHR managed to cut its outstanding debt by as much as 40m because of the extra cash it pulled in.

This is particularly upsetting for Farepak's agents, many of whom recruited friends and family members into the hamper scheme and club, and continued to send in payments right up until the time when administrators were called in.

What can be done?

There is a chance that Farepak clients may get some money back, but at best it would be a tiny fraction of their savings and it would not be paid very quickly.

A Farepak Response Fund is being set up to with the help of York-based charity Family Fund.

A number of retailers have promised to help, with Sainsbury's pledging that Farepak customers can get 25% of the value of their savings in vouchers, and Tesco pledging 250,000 for the response fund.

One of Farepak's customers has set up a website at www.unfairpak.co.uk that offers advice and a forum for discussing concerns and solutions.

According to the website the first thing customers should do is lodge a claim with Farepak's administrators, BDO Stoy Hayward.

Some MPs also have called on HBOS to repay savers who lost money, citing the company's profits. In August, HBOS reported half-year pre-tax profits of 2.65bn.

Who else has been criticised?

Labour MP for Birkenhead, Frank Field, has - during a Commons committee debate - attacked the role of HBOS in the collapse of Farepak.

HBOS was Farepak's banker and Mr Field said it should bear a heavy responsibility for the misery caused.

And some MPs have said they want a protest outside HBOS's headquarters in Edinburgh.

What does the future hold?

What has concerned watchdogs and MPs is that many of the people affected were on low incomes and through no fault of their own now face a Christmas without presents or festive foods.

Some have said that they now face taking on high interest loans or using credit cards to pay for their family's dinners and gifts.

It also raises question marks over how the money collected by Farepak's agents could be used to finance its parent company.

Many of Farepak's customers have promised to keep fighting for compensation and the Department of Trade and Industry has launched an investigation into what happened at the company.


VIDEO AND AUDIO NEWS
People who lost money when Farepak collapsed



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