POL00021604
POL00021604
Tab 5 Additional Board Minutes 07.12.2020 (approved 26 January)
0
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
MINUTES OF AN ADDITIONAL MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON
MONDAY 07 DECEMBER 2020 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ BY CONFERENCE CALL AT 09:00 AM?
Present: Tim Parker Chairman (TP)
Nick Read Group Chief Executive Officer (NR)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Carla Stent Non-Executive Director (CS)
Zarin Patel Non-Executive Director (2P)
Lisa Harrington Non-Executive Director (LH)
Alisdair Cameron Group Chief Finance Officer (AC)
In attendance: Veronica Branton Company Secretary (VB)
Ben Foat General Counsel (BF)
Richard Bussell Linklaters (RB)
Action
1. Welcome and Conflicts of Interest”
A quorum being present, the Chairman opened the meeting. The Directors declared that
they had no conflicts of interest in the matters to be considered at the meeting in
accordance with the requirements of section 177 of the Companies Act 2006 and the
Company's Articles of Association.
2. Funding / Historical Shortfalls Claims Scheme
Al Cameron introduced the conversation on funding, noting that we were in a period of
uncertainty. The position would become difficult if we became insolvent but having net
liabilities did not mean that we could not pay our debts. We also had to consider our Going
Concern position. However, Government funding of £227m was a significant show of
support and we believed that Government would not let us go insolvent but the decision on
the support for the Historical Shortfalls Scheme claims and the wider GLO funding would not
be received until February 2021.
The contracts with the DVLA and Viridian were the only ones where there was a right to
terminate where Post Office Limited (POL) had a net liability. The Smith & Williamson Report
had flagged that we were not reporting Security Headroom in a way which met the
requirements of both the BEIS Working Capital Fund and the Inter-Creditor Agreement
between BEIS, POL and Santander. There were two reporting requirements that were
inconsistent, although we had been audited on our previous reporting. We were working
through the precise requirements of the contracts for future reporting.
\t would be wrong to behave as if we were insolvent now as we were not. If we were we
would seek to monetise our businesses such as Digital Identity. We were taking all of the
steps we should be as directors to assure ourselves of the trading position. We would talk
to the Bank of England and NatWest about the current position in December 2020 but
would not talk to our other creditors until the New Year because at that point we would be
closer to a resolution. POL had had a net liability position previously and we would need to
accept a degree of uncertainty on an ongoing basis as we only had a one-year funding
position. There was a danger of overreacting as well as underreacting given the support we
1 Participation in the meeting was entirely via Microsoft Teams from participants’ personal addresses. In such circumstances
the Company's Articles of Association (Article 64) require that the location of the meeting be deemed as the chairman's
location. However, it was not deemed appropriate to record personal addresses on the Company record. As such, the
Registered Office is recorded as the meeting location.
2 This meeting is an addition to the scheduled meetings so standard items such as minutes and matters arising have been
carried over to the 26 January 2021 meeting.
Page 1of5
STRICTLY CONFIDENTIAL
POL Board Minutes for signature-26/01/21 22 of 39
POL0000137
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
were receiving from Government and we understood why they wished us to defer making
HSS de minimis payments while the issue of interest payments was resolved.
Tim Parker set out the decisions and outcomes sought from today’s discussions, including
a fe then invited questions.
Anumber of points were raised, including:
© Zarin Patel noted that she was comfortable with the proposal to wait until the New Year
to have conversations with creditors beyond our conversations with the Bank of England
and NatWest but she asked whether: 1) there were any implications for pension scheme
arrangements; 2) whether there were any requirements for notifying regulators; and, 3)
whether she was correct in thinking that the sale of the Telecommunications business
would support our net liability position in January 2021. Al Cameron reported that there
were not any pension related considerations; he did not think that there were specific
regulatory reporting requirements but that position would be checked; and he
confirmed that the sale of the Telecommunications business would have a positive
impact on our net liability position and that we had entered into exclusive negotiations
with Shell Energy on its planned purchase of the business
* Al Cameron noted that we had sought the three-month filing extension that had been
permitted to companies because of Covid-19 but thought it better not to defer
publication further. We had to recognise that there would be ongoing uncertainty and
we needed to describe our position and be as transparent as we could. Zarin Patel noted
that to do this we needed to have worked through the “bridge to certainty”; for the HSS
this included how we could quantify the claims and make the business case for the
payments. Al Cameron noted that this was a balancing act between the risk and cost of
a second litigation and the public money that would be entailed in making the HSS claims
and what measures we could take to avoid paying for fraudulent claims. There had been
a separation made between historical matters and the current business operations but
we had to remain involved in the Historical Matters Business Unit’s (HMBU) work to
© Carla Stent noted that we had to have some degree of pragmatism and balance the
situation with the commercial reality. The “bridge to certainty” was very important.
Publication of a net liability position without certainty of funding would leave us in a
difficult position and we needed to be cautious. The Government had advised that it
wished POL to have an incentive to monitor and contain the costs associated with the
litigation and its aftermath. We needed to do everything we should have done as
directors and for those with a profession: iter
an We needed to consider the reporting position on Security
Headroom, including having side letters in place and aligning reporting with the
requirements of the contracts. We needed to progress the actions from the Smith &
Williamson Report quickly. Conversations with the creditors other than the Bank of
England and NatWest could be deferred until January 2020 but we needed to continue
to work with Government to get clarity on funding for the HSS and the GLO
Page 2 of 5
STRICTLY CONFIDENTIAL
POL00021604
POL00021604
Action: AC
POL0000137
Tab 5 Additional Board Minutes 07.12.2020 (approve:
POL00021604
POL00021604
°
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
Lisa Harrington noted that we would be taking a different approach as a Public Limited
Company but we should nonetheless be taking a rigorous approach to exceptional
spend, reviewing this continually and having Board oversight of this process
Tim Parker noted that we needed to resolve issues such as interest payments and test
the approach taken to calculating the HSS claims before we could take further decisions
on the HSS. The HMBU was intent on getting payments made but this needed to be
aligned with the wider business interests
Tom Cooper explained the BEIS perspective. Much of the public sector existed with
funding uncertainty during spending review periods. The letter from the Board on the
HSS had been helpful because it had provoked work at BEIS and UKGI on understanding
how the HSS worked. The question of the payment of interest as part of the claims was
an issue, as had been the unquantified claims, because the approach taken could set
precedents for future claims and this could affect the overall cost of the scheme which
had not yet been approved. The payment of quantified claims was likely to be approved
if we could pay simple rather than compound interest. We needed some benchmarking
to be undertaken to make sure that the payment sums for legal costs were reasonable.
The
resolution of the McColls claim was an illustrative example because they had submitted
no evidence to support their application. This showed that the range of claim values
could be very wide and how the initial claims were dealt with might set a precedent.
BEIS did not understand why the interest issue had not been recognised earlier and a
question had been asked about the level of management and Board oversight. TC
thought it would help assurance provided to the Board and to BEIS if we could
strengthen the legal oversight and we might want to engage a lawyer who would report
directly to the Board. Carla Stent observed that interest was often dealt with as part of
settlements. Tom Cooper explained that Government needed to assure itself that
paying these claims represented Value For Money (VFM) and one approach was to
reference the HSS figures against the GLO settlement figures, which included simple
interest, not compound interest. We would need to look at the unquantified claims and
how the claim values were calculated afresh. Tim Parker noted that we wanted to avoid
more litigation and settle with HSS claimants reasonably but this did not prevent there
being a second litigation if a law firm or backer thought this offered a better prospect of
higher settlement figures. Tom Cooper thought we had a “bar bell” set of potential
outcomes currently and it would be a bad outcome if people were either paid too much
or too little through the HSS and the key was to achieve a reasonable middle ground.
Additional legal oversight would be helpful for our own assurance but in addition BEIS
would need to have confidence that we had addressed the “bar bell” issues, albeit that
there would be some level of risk associated with the claims payments
Tim Parker noted that if we had a cap on the payment envelope for the claims we should
be able to settle the majority, accepting that a cap could generate some negative PR if it
was viewed as reeling back from having a totally independent panel; however, this
should reduce the number of very high claims accepting that some claims might end up
going to court if they could not be resolved through the HSS. Tom Cooper thought it
likely that BEIS would want to retain the Independent Panel and would not want to take
on the role of assessing the claims themselves. Tim Parker noted that a common sense
outcome would be to seek to settle as many claims as possible satisfactorily for both
parties and we needed to determine what had to happen to achieve this aim. Nick Read
noted that we had to be cognisant that individual settlements did not rule out further
litigation. 112 people had enquired when their claims were going to be paid; whilst not
a groundswell at the moment, the anniversary of announcing that we would set up a
scheme would be 11" December 2020. Some form of cap looked sensible recognising
the prospect of, say, the top 10% of claims going to Court
Page 3 of 5
STRICTLY CONFIDENTIAL
POL Board Minutes for signature-26/01/21 24 of 39
POL0000137
POL00021604
POL00021604
Tab 5 Additional Board Minutes 07.12.2020 (approved 26 January)
0
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
* AlCameron thought it would be helpful to be clear on what we meant by VFM because
there were two elements: 1) the payment of the HSS would be less costly than a second
litigation based on our judgment of the range of costs associated with each 2) We could
settle the HSS for less than the current estimated settlement figures
* Ken McCall thought that there should be four or five actions undertaken and reviewed
regularly by the Board to help with the “bridge to certainty”. It was a difficult set of
circumstances for Government but we might want to provide it with some options or
choices to help progress the funding decisions. It was difficult also for the Board if we did
not know what the Shareholder wanted us to do. Tom Cooper thought the test cases
would be a critical for the size of the claims. If most of the claims were medium sized, of
say between £5k or £10k on average, that average figure would make a significant
difference to the overall costs. The question of how these claims would be resolved in
practice and whether they represented VFM was critical. Tim Parker noted that all we
could do was work out that these claims were reasonable and that the settlements
proposed were reasonable; we could test the Herbert Smith Freehills’ assumptions but
we were not going to get to a position of complete certainty. TP added that we could not
start making the HSS payments until we knew Government had confidence about how
the Scheme would operate. Carla Stent noted that this made the “bridge to certainty”
harder if the assurance provided by the Independent Panel was not regarded as
sufficient and wondered whether a BEIS person be involved with the Panel’s work. [Lisa
Harrington left the meeting]. Tom Cooper reported that BEIS was not concerned about
de minimis payments as a principle and was supportive of the Independent Panel in
principle. However, we did not have processes in place currently to provide comfort on
the “bar bell” issue. Tim Parker noted that for greater certainty on costs we would need
a greater degree of certainty on the costs associated with the majority of the cases. Al
Cameron noted that we had said we would come back in January 2021 with a better
view on the quantification of the claims; we needed to set out the choices now, e.g.
simple versus compound interest
Ken McCall thought there was danger in seeing the McColls settlement as a benchmark
for the difficulty of resolving claims. The McColls arrangement was different and was in
part an assessment of what might happen with one of our critical partners and the cost
of replacing them or court action being taken by them. Tom Cooper explained that he
had been using the McColls example as a way to illustrate that POL’s assessment work
meant that we could have paid more than McColls had claimed.
Tom Cooper described the position at BEIS. There was a clear intention to fund POL, they
understood the sums involved and the potential liabilities and they understood the
consequences of the approach they were taking. BEIS would not have committed £227m in
funding were they not supportive of POL; however, there were process issues to work
through for the HSS. HM Treasury approval of the £300m contingent liability figure
associated with the HSS was expected later this week and BEIS should then be able to
release the comfort letter. In terms of funding HSS claims overall, this would be considered
at an investment committee in BEIS in mid-January 2021 and that approval was likely to be
at the end January or early February 2021. TC agreed with Al Cameron that we should not
defer the publication of the 2019/20 Annual Report and Accounts unless absolutely
necessary. Al Cameron noted that we would need to be able to quantify the provision to
include it in the Annual Report and Accounts; this would have to be worked through at the
Audit Risk and Compliance Committee (ARC) on 26" January 2021 and with PwC; this was
not only a question of including a number.
Tim Parker summed up the discussion and decisions. The Board AGREED that:
the business should continue to operate as it was currently with tight controls on
spending. There was uncertainty about funding but we had support from Government
Page 4 of 5
STRICTLY CONFIDENTIAL
POL Board Minutes for signature-26/01/21
POL0000137
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
Al Cameron would have conversations with NatWest and the Bank of England in
December 2020 but wait until the New Year to have conversations with other creditors
unless the situation changed
we would act on the advice and recommendations from the Smith & Williamson report
we would consider the “bridge to certainty” further and what was necessary to obtain
greater certainty
* the outcome of exceptional spend being undertaken by the Investment Committee on
7 December 2020 would be provided to the Board for consideration
© the Board would meet again before Christmas to further review of the position,
preferably after the HM Treasury approval had been secured and we knew whether
BEIS then required confirmation in writing from HM Treasury.
Any Other Business
There being no other business the Chairman declared the meeting closed at 10.15 hrs.
Date of next scheduled meeting
26" January 2021.
CHAIRMAN
Page 5 of 5
STRICTLY CONFIDENTIAL
POL00021604
POL00021604
Actions:
Executive/
AC/ BF/ TP
POL0000137