Shareholders in Bell Pottinger are considering taking legal action against the former directors of the collapsed agency for failing to alert them to the scale of the crisis in South Africa.
It is understood that shareholders believe that were not in full possession of the facts when Bell Pottinger launched a share buy back earlier this year which, had they known, might have prompted their participation. Today, their stakes are worthless.
The buy back was prompted by the need to acquire Lord Bell’s six per cent stake in the business, following his ousting the previous year. Other shareholders demanded the same right to sell back their shares, which had failed to perform since the management buy out and never even paid a dividend. However, the majority of shareholders did not take up the option.
In the event, Bell Pottinger borrowed £6 million in March from Lloyds Banking Group to fund the purchase. It is believed that Lord Bell received around £650,000 for his stake.
At the time of the buy back, Bell Pottinger had already lost accounts with South Africa’s Investec banking group, the South African Tourist Board and long standing client Richemont as a result of its association with the Gupta brothers. The agency was under attack in the South African media, accused of stoking racial tensions. Clients and employees were also being trolled. Some shareholders claim they were not aware of the extent of the campaign against Bell Pottinger, which one month later resigned the Oakbay account.
Shareholders are demanding to see the full version of the report drawn up by law firm Herbert Smith Freehills, which investigated the work of Bell Pottinger for Oakbay Capital, the investment vehicle for the notorious Gupta brothers. The report was ordered in June by former chairman Mark Smith after the Public Relations and Communications Association (PRCA) announced it was investigating the work, following a complaint from South Africa’s Democratic Alliance party.
Interim evidence from the law firm prompted the dismissal of account lead Victoria Geoghegan and the suspension of three other employees. While Bell Pottinger published an abbreviated version of Herbert Smith’s findings, the shareholders are demanding to see the full report, of which just a handful of copies exist. It is understood that Herbert Smith has recommended that the unabbreviated versions should be destroyed because of the sensitivity of their contents. However, the shareholders have received legal advice that these are ‘discoverable’ documents and should be preserved.