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Banks, Lenders & Investors Finance General Rescue, Restructuring & Recovery Turnaround

Banks, integrity and relationships

Banks can provide “negligent advice” to customers without being held liable.
The outcome of a recent court case has effectively sent a message to banks that mis-selling of products is not illegal.
Crestsign Ltd, a small, family owned business, had challenged Natwest and RBS in court over alleged mis-selling.
The company refinanced its debts in 2008 for five years with a loan that provided for variable rate after two years. At the same time the banks recommended a 10-year interest rate swap that provided for a fixed rate of 5.65% for the ten years. When seeking to refinance again in 2011, the break costs were £600,000.
The banks denied that they owed a duty of care and claimed that any advice was limited to ensuring information given was ‘not misleading’
While the judge, Tim Kerr QC had expressed considerable reservations about the banks’ “negligent” behaviour relating to giving advice and recommendations on the swap product, in fact and in law the wording in the documents supplied to the customer exempted the banks from liability.
SMEs should beware.
Firstly, before agreeing to buy any product they should take independent advice.
Secondly, they should remember that the sale of products by a bank is likely to benefit the bank.
Thirdly, the small print is normally there to avoid liability by whoever drafts it.
And finally, relationship managers are very rarely decision makers.

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Banks, Lenders & Investors Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Update on Interest Rate Swaps missold to SMEs

 

The May deadline for banks to compensate thousands of small businesses for the misselling of Interest Rate Swaps (IRS) has now past and banks would seem to want everyone believe that they have resolved matters within the deadline.

But campaigners Bully Banks say that many SMEs will miss out on compensation arguing that banks have rejected most claims for consequential loss.

The compensation scheme imposed by the Financial Conduct Authority (FCA) on the banks allowed for basic redress – a refund for excessive interest paid plus 8% interest. However, affected businesses could also claim for such things as lost profit and legal expenses (consequential loss).

Bully Banks Chairman Jeremy Roe was quoted recently as saying: “I don’t know of any business that has successfully claimed for consequential loss and received reasonable compensation from their bank”.

Meanwhile the British Bankers’ Association claims that banks have met their obligations by informing businesses of the IRS compensation they may be owed by May’s end. The claims for consequential loss are being dealt with case by case but would seem to be being dragged out.

It is three years since Bully Banks first began their campaign into IRS misspelling.  That is a long time for a small business to wait for recompense. 

But for many it seems that the waiting is still not over and the outcome remains uncertain.  In the meantime many such businesses would be well advised to prepare for the worst by revising their business plans with the help of a turnaround adviser rather than wait in hope for a big payout.

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Further questions need to be asked

 

In our last blog we highlighted the case of businessman Michael  Hockin’s 15-month battle to be allowed to sue RBS over a mis-sold Interest Rate Swap (IRS) which added over £600K to his company’s annual repayment bill to the bank.

The High Court ruled in his favour even though his company had been put into administration and, as mentioned, the administrators had declined to pursue the bank for the benefit of creditors.

We’ve found an interesting little note on the Financial Conduct Authority’s (FCA)website regarding reviews of  a bank’s mis-selling of an IRS, which clearly states that businesses in administration are (our italics) eligible to participate in the review:  http://tinyurl.com/pgqsr9p  

“…when banks invite businesses in administration to submit any relevant information…..we would generally expect administrators to offer the former directors or shareholders the opportunity to put forward their perspective.

“However, it will be the administrators and not the former directors or shareholders who will engage with the banks during the review.”  (our italics again)

We have previously questioned the conflict of interests between panel firms advising directors and their relationship with banks. Is there another potential conflict between panel firms representing banks and their duty to unsecured creditors? These issues were not included in last month’s review by the Insolvency Service of the regulatory regime and fee structure. A missed opportunity.

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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

High Court ruling on mis-sold IRS gives businessman the right to sue RBS

 

As time goes on more and more murky behaviour by the banks in their treatment of SMEs over Interest Rate Swaps (IRS) is being revealed.

It has been two years since the lobbying group Bully Banks first highlighted IRS mis-selling (IRS are also sometimes referred to as Interest Rate Hedging Products- IRHPs).

As a result of their efforts, and the Tomlinson report into the behaviour of RBS, the Financial Conduct Authority (FCA) has been tasked with investigating the banks’ behaviour and administering a redress scheme to allow SMEs to reclaim their money.

Now a High Court ruling has given one businessman, Michael Hockin the right to sue RBS over a mis-sold IRS, even though the bank put his business into administration in a classic illustration of the behaviour highlighted by Tomlinson.

The company, London and Westcountry Estates, had had a loan that RBS converted to a 10-year IRS, adding an estimated £600,000 extra in annual repayments and an exit fee of £11 million that Mr Hockin said the family was never warned about.

One of the questions that needs to be asked is why the administrators of this once-prosperous business, Ernst & Young, did not pursue a claim against RBS over alleged mis-selling.

RBS meanwhile is quoted as saying that it had investigated Mr Hockin’s concern about mis-selling and found no evidence of wrongdoing by the bank

The case will now be heard in court. Hopefully the issue of why the administrators declined to pursue the bank will be given an airing.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Bully Banks fight back on behalf of SMEs

 

The Treasury Select Committee (TSC) has begun investigating the banks’ treatment of SMEs, covering everything from lack of financing to bullying.

The investigation follows media pressure and a number of reports, including the Tomlinson Report into complaints about RBS, and details relating to the Financial Conduct Authority’s investigation into mis-selling of Interest Rate Swaps (IRS) to SMEs.

Arguably, though, the pressure for a thorough investigation began in December 2011, with the formation of Bully Banks, an independent organisation to lobby for investigation and action on the IRS scandal. Membership of Bully Banks has now reached more than 2000 and all are SMEs.

Bully Banks (www.bully-banks.co.uk) has campaigned for action to help SMEs recover their money, but this year it widened its campaigning following Tomlinson and the emergence of another potential mis-selling scandal affecting banks’ use of the Enterprise Finance Guarantee Scheme (EFG),  which we was covered in a recent blog.

The investigation by the TSC would suggest the group may have achieved its objective, at least partially.

The question is whether the TSC has the teeth to do what Bully Banks wants and if it does find evidence of bank mistreatment of SMEs, what recommendations would you want to see and what likelihood is there of the banks actually taking notice or acting?