Co-op demands £31,000 back from Paul Flowers as next payout is halted

'No further payments' for disgraced bank chairman
 Pressure mounts on Balls as Labour attacks 'smears'

The Co-operative Group last night wrote to the former chairman of its bank, Paul Flowers, to demand he return his £31,000 payoff when he left the business in June.

The 63-year-old Methodist minister, who was videoed handing over cash apparently to buy drugs, was in line to receive another £124,000. However, the Co-op said it decided last weekend, when the revelations about Flowers's private life emerged, not to make any further payments.

They were to cover his role as deputy chairman of the Co-operative Group. Flowers was elected to the position and due to remain in it until 2014.

In 2012 he was paid £132,000 to cover his role as chairman of the bank and his position on the group board. That sum also covered a company car.

Flowers, who has been suspended indefinitely by the Methodist church, resigned to take responsibility for the problems at the Co-op bank, which is racing to plug a £1.5bn shortfall in its capital identified by the Bank of the England.

The bank is urgently contacting bondholders ahead of a crucial vote next week on a deal that will leave the Co-op Group with just a 30% stake in the bank. Bondholders, led by two US hedge funds, will own the rest. Vince Cable, the business secretary, has indicated that he is ready to review the continued use of the Co-op name at the bank after the change of ownership if asked to do so.

A Department for Business spokesman said: "The secretary of state would carefully consider any representations he may receive regarding his powers under the Companies Act on the matter of company names."

The Co-op embarked on an "internal fact-finding review" after the video was released by the Mail on Sunday. It is now reviewing all emails sent and received by Flowers during his time as chairman and checking expenses he reclaimed.

Flowers apologised after the video was released, saying he had done things which were "stupid and wrong" after a death in the family and as a result of the pressures of chairing the bank. He has made no further comment since.

The Co-op said on Thursday: "When Paul Flowers relinquished his responsibilities in June, it was agreed, as per his contractual obligations, that his fees for the rest of his period of office would be paid.

"Following recent revelations, the board stopped all payments with immediate effect and no further payments will be made."

The circumstances surrounding his resignation from drug charity Lifeline Project – where he was accused of misclaiming up to £70,000 – were not known to the Co-op Group when he was named chairman of the bank in March 2010.

The political fall-out from Flowers's fall continued on Thursday. Ed Balls, the shadow chancellor, is facing renewed pressure over his links to the Co-op Bank after it emerged that he attempted to woo voters in theLabour-affiliated Co-operative party during the 2010 leadership contest by claiming that he helped pave the way for the Britannia Building Society takeover.

As the Labour leadership accused the coalition of launching a smear campaign over the party's links with the disgraced chairman, a transcript of an interview with Balls in 2010 showed that he highlighted his role in helped to create Britain's "first ever 'super-mutual'".

Balls told the Co-operative party in August 2010: "I was able to show this [my support for co-operatives] by ensuring treasury support for a new private members bill [introduced by the then Tory MP Sir John Butterfill] that led to the creation of the first ever 'super-mutual', bringing Britannia Building Society and the Co-op Bank together in the interests of customers, rather than the banking elite." A spokesman for Balls acknowledged that he supported the private member's bill but pointed out that he played no role in approving the merger in 2009 which was made on commercial grounds when he was schools secretary.

Balls said Flowers had been suspended from Labour and was "out, out, out".

Flowers resigned from the unpaid position as a trustee at the Lifeline Project in Manchester in 2004 after its chief executive Ian Wardle blew the whistle to the charity's solicitor regarding discrepancies in Flowers's expenses.

Wardle said: "These discrepancies had not been obvious and required a detailed investigation. Following legal advice from the outset from Lifeline's solicitor and further support from Queen's Counsel, the investigation continued and a process was followed to attempt to identify with the involvement of Rev Flowers, which of the expenses were reasonably incurred and which were not. The matter was fully reported to the Charity Commission."

Wardle said the charity had no record of the Co-op ever asking for a reference concerning Flowers.

The Charity Commission said Lifeline Projects had never provided any evidence that Flowers had acted in bad faith in claiming the expenses, or that he had claimed expenses incurred outside of charity business.

The commission believes that Flowers claimed under an expenses policy agreed by the Lifeline's board, which turned out to be "not in line with charity or company law and not allowed by the terms of the charity's governing document."

New management at Lifeline changed the expenses policy to make it legally compliant and asked Flowers to pay the money back. According to the charity, he never did. The Charity Commission said: "We are now writing to the charity of which the former trustee of Lifeline Projects is still a trustee to reassure ourselves that it is satisfied its governance systems are robust and there are no concerns relating to the issues raised by Lifeline Projects.

"We will also write to all of the charities of which the trustee in question has served as a trustee for the same purpose."

Flowers has stood down from the boards of the Manchester Camerata and the Terrence Higgins Trust. The trust said on Thursday that Flowers had not claimed expenses, sent emails from the trustee email address nor accessed the internet.

Article Source : http://www.guardian.co.uk
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