ScottishPower faces more questions over £79m warranty scandal

ScottishPower was the controlling force behind the warranty scheme, benefiting by millions of pounds when it collapsed, liquidators allege. Photograph: David Cheskin/PA

ScottishPower is facing fresh legal and political pressure over one of Britain's biggest extended-warranty scandals, which left more than 625,000 of its customers owed £79m more than a decade ago, amid allegations that the energy group "deliberately evaded" repaying promised sums.

Liquidators have been chasing funds on behalf of out-of-pocket consumers for years after two companies involved in the warranty offer went bust. They now claim to have discovered new evidence they had not been aware of when accepting a £6m settlement from ScottishPower – a fraction of the sum they say should have been provided to meet money-back promises.

The dispute centres on a promise to ScottishPower customers buying five-year PowerPlan extended warranties on fridges, washing machines and other electrical goods that they could claim back the entire cost of the warranty if, five years later, they had not made a claim on it.

Liquidators to PowerPlan Company Limited (PPCL) now allege: "ScottishPower … denied that it was liable for cashback [claims from maturing warranties], and gave an account of the history which painted it as an innocent party who had been a mere sales agent in a flawed scheme that was the brainchild of PPCL directors."

PPCL was set up as a company independent of ScottishPower to issue extended warranties sold in the energy group's 150 high-street stores between 1998 and 2001. But, liquidators claim, it was a "virtual company", a "conduit pipe" directing almost all cash reserves back to ScottishPower through the group's insurance arm, Domestic Appliance Insurance Limited (DAIL).

New evidence, the liquidators allege, proves ScottishPower was the controlling force behind the warranty scheme, benefiting by tens of millions of pounds at consumers' expense when the scheme fell apart.

ScottishPower denies misleading liquidators and insists it had been entitled to argue it was not liable for up to £75m of cashback claims in "hostile and adversarial" negotiations with PPCL liquidators.

A cross-party group of nine MPs, including the former Labour consumer minister Gerry Sutcliffe, have this month written to the business secretary, Vince Cable, asking him, in the light of allegedly new material, to review an inquiry into the affair carried out by the department a decade ago.

Liquidators to DAIL have put ScottishPower on notice that they intend to ask the courts to set aside the 2004 settlement with the energy group, which saw it pay £6m to draw a line under the matter.

Meanwhile, liquidators to both DAIL and PPCL have sent reports on the affair to the Financial Conduct Authority and to criminal authorities. They claim that fraudulent misrepresentations may have been made before the 2004 ScottishPower settlement.

Liquidators to PPCL from the MacDonald Partnership have claimed in a letter to regulators: "When ScottishPower realised the cost of making cashback payments was spiralling out of control, it deliberately evaded its liability. As a result, it avoided the need to issue a profits warning, and consumers lost out."

ScottishPower points to the collapse of the high-street retailer Powerhouse as contributing to the failure to meet cashback promises to warranty holders. Powerhouse bought most of ScottishPower's stores in 2001, together with DAIL, the energy group's insurance subsidiary.

As part of the sale, ScottishPower gave a £75m indemnity against cashback claims on DAIL. Later, however, it argued that it had discovered an unintended flaw in the legal wording which meant this indemnity could not be called upon.

In a statement, ScottishPower said the main reason warranty holders were left out of pocket was "the unexpectedly large number of such claims made by customers … together with Powerhouse's collapse into administration".

The resurfacing scandal is likely to be particularly uncomfortable for David Nish, chief executive of Standard Life, who was ScottishPower deputy finance director at the time and played an important role in overseeing the setting up of a string of companies and contracts for the extended warranty offer.

Later promoted to group finance director, Nish signed off the 2003 accounts of ScottishPower in which shareholders were told: "The directors consider it extremely unlikely that there will be any material financial exposure [from the cashback indemnity]." This showed that the board did not expect to pay out on cashback claims.

Contacted by the Guardian, a spokesman for Nish declined to comment or answer questions. He said all inquiries should be directed to ScottishPower.

Sutcliffe said he and fellow MPs felt new evidence pointed to "an abuse of corporate power" which had left "many of our constituents worse off." He said: "While this was a while ago, there are still people in senior posts today who were responsible for this taking place."

ScottishPower rejects claims that the liquidators have discovered new information that could invalidated the 2004 settlement.

In a statement, it said: "We emphasise that the PowerPlan extended warranty scheme, which was one of a number of very similar extended warranty products offered by retailers across the industry, did not involved any wrongdoing by ScottishPower."