Building society savers are the last to know

TOMORROW the Halifax and Leeds building societies begin an attempt to get their enormous merger-cum-flotation approved by the High Court. The case will be horribly arcane, turning on the interpretation of a single clause of the 1986 Building Societies Act. But the implications are huge: 10 million savers and borrowers with the two societies stand to receive a windfall in free shares of around £8bn - an average of £800 each - if the deal is approved.

The decision could also affect Lloyds Bank's attempt to take over the Cheltenham & Gloucester Building Society. As I have written in this column before, the 380,000 C&G borrowers are being dismally treated. The C&G board is advising them to surrender their ownership rights in the society in return for nothing. If they see that borrowers can be rewarded if a building society floats (rather than submits to a takeover), they may demand that the C&G think again.

The society needs a majority of borrowers to approve the deal. They are due to vote by 31 March. The High Court decision on the Halifax/Leeds plan is expected shortly before. It may be just the fillip to encourage C&G borrowers to vote no.

Meanwhile, the Halifax and the Leeds have come up with a curious arrangement to distribute free shares to their saving members. Savers with balances of more than £100 will receive a flat-rate amount of free shares, probably around £500-700 worth. But those with larger balances will also receive additional shares based - attend closely here - on a percentage of whichever is the lowest of the balances they held on a number of key dates, starting with 25 November 1994. There will be several future key dates until the share distribution some time in 1997. But the Halifax will not let on when these will be - indeed it says it has not decided yet.

Big savers who temporarily empty their accounts during one of the key dates get nothing. The saver who uses his or her diligently accumulated savings as a deposit for a mortgage during the period gets nothing. Borrowers are treated equally haphazardly. The mortgage holder who has been with the society for 25 years, but whose mortgage expires between November 1994 and the flotation, gets nothing.

The societies believe that they have to keep members in the dark to prevent massive speculative flows. But the bizarre rules will make it impossible for members - this is one sixth of the UK population, remember - to make informed, rational decisions about their personal finances over the next two years.

One overlooked side effect of this capricious payout arrangement is that the members, particularly savers, are locked in until after the flotation. If they take their business elsewhere, they forfeit valuable shares.

In effect, the Halifax and the Leeds have a captive customer market for the next two years. Standards of service can easily slip when no customers are walking out the door.

Bust and flush

DAVE WILMOT, a pilot with Paramount Airways, could hardly have imagined the rumpus he would cause when he began legal proceedings against the administrators to this tiddly airline four years ago. The unfortunate Captain Wilmot had had no fewer than nine other airlines go bust under him. This time, he was determined to get his full entitlement to holiday pay.

The infamous Paramount case ended last week with the House of Lords ruling that receivers and administrators were liable for the severance pay and pensions contributions of employees kept on for more than 14 days after a company went bust. The ramifications are alarming.

The judgment covered the period from 1986 until March 1994, when emergency legislation was brought in to close the loophole, which is now gaining currency as "the fatcats' charter". People sacked by insolvency practitioners could now claim up to £750m, according to estimates from the Society of Practitioners in Insolvency. The lion's share will go not to ordinary workers, but to senior managers.

The judgment conjures up the unsavoury prospect of the directors of failed companies such as Maxwell Communications, BCCI, British & Commonwealth, Polly Peck, Mountleigh and Atlantic Computers - most of whom must bear some responsibility for their companies' collapses - queueing up for lolly. That cannot be right.

Fireproof please

THE dust has settled over Glaxo's successful £9bn takeover of Wellcome. And the £1bn Northern Electric/Trafalgar House tussle is in limbo, awaiting clarification from the regulator. So investors are turning their sights to the next biggest megabid - BPB Industries' £708m tilt at the American plasterboard maker National Gypsum. They do not much like what they see. The reasons in one word: asbestosis.

National Gypsum has rejected the initial overture from BPB but agreed to supply information to it. The message is that it will yield if BPB's bid is pitched high enough. But in the past, National Gypsum has attracted many asbestosis claims. It put the worst behind it when it came out of Chapter 11 bankruptcy in 1993, setting up a trust with $700m of assets to meet all future claims. The operating company, meanwhile, was to be free of all future claims under a so-called "channelling order" by the courts.

But never say never. The trust is now saying the assets it was given are not worth $700m and it wants a top-up. Asbestosis claims are difficult to predict, contain and see the back of.

I spoke to one large institutional investor in BPB last week that is very concerned that asbestosis claims in the US can never be totally capped. It is threatening to vote against any deal unless it can be 100 per cent assured that there is no remaining liability.

Jean-Pierre Cuny, BPB's chief executive, insists he will walk away if he is not completely satisfied about the asbestosis situation. BPB is advised by Weil Gotshal & Manges, the US lawyers behind National Gypsum's bondholders when it filed for bankruptcy, and NM Rothschild, so it is not short of expertise.

But bidding companies have a habit of throwing caution to the wind when the scent of blood is in the nostrils. BPB will have to get a cast-iron guarantee about asbestosis if it is to satisfy its shareholders.