The treatment of SMEs in the aftermath of the 2008 credit crunch by RBS, one of the UK’s two main lenders to small businesses has come under scrutiny this week.
An investigation, by businessman and government adviser Lawrence Tomlinson, has claimed that RBS may have “engineered” firms into RBS’s turnaround division Global Restructuring Group (GRG) so that RBS could generate enhanced revenue at the expense of their SME clients.
Tomlinson claims there was a “systematic abuse” of corporate clients by RBS that allowed them to charge significant fees before appointing administrators who immediately sold the clients’ business assets back to RBS’s property division West Register.
It is assumed that West Register has been required to generate its own profits for RBS by increasing the value of those assets it acquired from clients. This would suggest that the assets were bought at a very low value before they appreciated in value for the benefit of RBS.
The whole sorry saga is now being investigated by the Financial Conduct Authority and the Prudential Regulation Authority following a referral by Business Secretary Vince Cable.
While the focus has so far been on banks, the saga raises the question as to whether there has been a conflict of interests among some insolvency practitioners (IPs), who following an introduction by RBS to clients then sold the clients’ assets back to RBS under an Administration Pre-pack procedure.
While such realisations may have been legal the practice stinks and reminds me of the activities of HBOS’s Impaired Assets division in Reading which resulted in senior managers being charged with conspiracy to corrupt, fraudulent trading, money laundering and blackmail. Fortunately none of the IPs involved in that saga was charged, but it would seem that their role was not investigated.
All this suggests that the directors in these situations are not getting independent advice.
It would also seem there is a need to review the relationship between banks and their panel IPs?
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