Some entrepreneurs receiving equity backing from the Development Bank of Wales have made allegations of 'being bullied out ' the Senedd has been told.
Tory MS Paul Davies raised the allegations in updating Senedd members on a recent review into the performance of the development bank, which is wholly-owned by the Welsh Government, undertaken by the cross-party economy, trade and rural affairs committee, which he chairs.
Mr Davies cited in person evidence given to the committee during its review by Prof Dylan Jones-Evans who referred to serious allegations from some company founders that had received equity backing from the bank.
In a statement the development bank said it couldn't respond to "unsubstantiated allegations."
Quoting verbatim from Prof Jones-Evans’ testimony, Mr Davies told the chamber: “Unfortunately, I have been approached by a range of businesses prior to this review who feel that they have not been treated fairly with valuations being too low, where decisions have taken far too long, and where terms are unacceptable with a take it or leave it attitude.
“Worst still, there have been instances where some have been bullied by the directors imposed on them, where they have been forced out by dubious means and where founders feel they have not been supported by the bank.”
Mr Davies said that Prof Jones-Evans highlighted cases of several young inexperienced founders who should have been given far greater support at the time by the development bank as their main funder.
He added: “I am sure everyone in this chamber will be concerned by the professor’s allegations and agree young entrepreneurs are exactly the sort of people we want to encourage to do business here in Wales.
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"And if these reports are accurate, those actions may well have extinguished that entrepreneurial spirit, which would be an absolute tragedy, and exactly the opposite of what the bank was established to do.”
Mr Davies said that after hearing Prof Jones-Evans’ evidence, the committee received a number of e-mails from business owners about their dealings with the bank. He added they had “felt they had been bullied out, or in fact had their businesses essentially stolen.”
The committee chairman added: “Unfortunately, much of this testimony was supplied anonymously, which limited our ability as a committee to scrutinise it."
Mr Davies said following evidence submitted to the committee, he raised concerns with the development bank. He added: “I have discussed these accusations with the bank via correspondence and in a private meeting, and they absolutely refute them.
“The bank told us that investor directors were common in venture capital and they would always work in the interests of the company itself as a matter of company law.
"The bank also explained they have a comprehensive complaints procedure and seek to deal with all complaints openly and fairly, and that they have opened up a new route so complaints can be made directly to the bank’s general counsel if the complainant wishes the matter to be kept confidential.”
As a result of the allegations Mr Davies said the committee’s report on the development bank made two related recommendations: one (10 of 13) calling for the bank’s complaints process to be included in a full review undertaken by Welsh Government and in recommendation 12, the bank working with the Welsh Government should give consideration as to how they can collect views from businesses confidentially.
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In its formal response to the committee’s report, the Welsh Government accepted recommendation 10 in principle and fully accepted 12.
The development bank comes under the ministerial responsibilities of Cabinet Secretary of the Economy, Energy and Planning Rebecca Evans. In response to the concerns raised by Mr Davies she said in the chamber: “I am aware that specific complaints were brought to the attention of the committee, and, where possible, I have familiarised myself with those, and I’ve had the opportunity to address concerns.
“It is the case, though, that founder members of companies are sometimes removed by their boards. The bank’s involvement is as a lender and a minority shareholder, and, as such, the bank’s rights are limited to those which are agreed with the company in the investment agreement and the articles of association.”
Responding to the minister’s comments, Tory leader Andrew RT Davies, said: “This is a severe criticism and observation provided by evidence to a witness to the committee, that people were imposed as mentors on companies and then founder members were removed.
"To say that it is common practice for boards to remove, when the evidence that the committee took showed that there was some doubt in the genuine reasons why members might have been removed - the original founders of the company - is very concerning indeed. You’ve said yourself that you have looked at some of these complaints. Do you believe that the complaints have merit to them and need further investigation."
Ms Evans responded: “I said that founder members are ‘sometimes’ removed by boards. I wouldn’t go so far as to say that is commonplace., but I think the point here is that it’s not understood what the role of the development bank is in relation to these boards.
"The rights that I’ve just referred to are standard in the industry and they’re in place to protect the public investment, providing measures of protection for the public funds that the bank invests. I am, though, satisfied that the bank has looked at the complaints.
"There have been some cases, to be fair, where the complaints have been brought to the attention of the committee, rather than appropriately through the complaints process to the bank. So, I would obviously encourage those who do have a complaint to raise it directly with the bank."
Following the Senedd debate a spokesperson for the Development Bank of Wales said: "The board and management team of the development bank welcomed the committee’s report in July and are grateful to all those who participated.
As a responsible lender and minority investor, our approach is supportive while still being commercial, acting within the parameters of individual investment agreements and company law.
"We have a comprehensive complaints procedure and seek to deal with all complaints openly and fairly, but we cannot respond to unsubstantiated allegations.
"Where we have been made aware of the details of complaints that are specific to the development bank, these have been investigated in full and responded to comprehensively as part of the committee’s inquiry process which concluded in the summer. We have also offered to review any that have not previously been shared with us.”