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Babcock Borsig Probe Expands

Prosecutors probing the collapse of German engineering giant Babcock Borsig have widened their investigations to include senior executives at the TUI leisure group and the HDW shipyard.

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In the red: A probe into Babcock Borsig's insolvency has been broadened

Düsseldorf's public prosecutor has widened its investigations into the insolvency of the century-old German engineering group Babcock Borsig.

On Monday, Chief Public Prosecutor Bernhard Englisch said that the probe would now be expandeed to include seven additional managers of Babcock and TUI, the travel conglomerate formerly known as Preussag, as well as managers of the Kiel-based shipyard HDW. A separate probe into Babcock's former chief executive, Klaus Lederer, has been active since July.

Top executives being probed

The two most high-profile TUI executives are Michael Frenzel, TUI’s chief executive and Fridel Neuber, chairman of its supervisory board. They stand accused of dragging out Babcock’s insolvency and embezzling funds. Babcock’s former executive Klaus Lederer has been facing investigations for similar charges since last July.

"Our investigations focus on the highly controversial instrument of cash clearing between Babcock and its subsidiaries," a spokesman for the Düsseldorf district attorney told the Financial Times. "The subsidiaries continuously lent money to their parent without ever seeing anything in return."

Dubious dealings between HDW and Babcock

Prosecutor Englisch said the investigations were centering on the charge that HDW suffered heavy losses after it was sucked into the cash clearing method the shaky Babcock Borsig used with its subsidiaries.

HDW’s profits are believed to have been swallowed by parent company Babcock at a time when Rainer Feuerhake, who is also being investigated, served as TUI’s chief financial officer.

The probe is also focusing on the role of Fridel Neuber, chairman of TUI's supervisory board and head of WestLB, Germany’s largest public sector bank until last year.

Neuber’s influence on TUI and Babcock derives from WestLB’s large stakes in both companies. TUI sold Babcock two engineering companies in return for a 50.1 percent stake in HDW.

"It’s hard to imagine that Neuber as head of the WestLB, which was involved in all the firms, didn’t know anything about the whole business," said Englisch.

Insolvency prompted by sale of HDW

Babcock Borsig’s insolvency was triggered in March after the company, under Lederer's watch, sold off its best performing asset -- the Howaldtswerke Deutsche Werft (HDW) shipyard, the world’s largest producer of conventional submarines, to a U.S. financial investor.

The move effectively pushed Babcock into bankruptcy and left the group with a number of underperforming power plant engineering operations. Babcock’s insolvency put at risk some 22,000 jobs worldwide, including 13,000 in Germany.

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