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Business Advisory


HBOS Reading Fraud

On the 30th January 2017 two former HBOS employees, Lyndon Scourfield and Mark Dobson were convicted following a four-month trial in to corruption and fraud at the Reading offices of HBOS, subsequently taken over by Lloyds Bank.

The fraud involved a firm of consultants, Quayside Corporate Services Ltd, whose services would be imposed on the bank’s small business customers in exchange for bribes.

Quayside purported to be turnaround consultants but far from helping businesses they milked them for huge fees and used their relationship with the bank to bully the business owners and strip them of their assets.

The fraud was uncovered by Nikki and Paul Turner who formed SME Alliance and lead a campaign against Lloyds bank for over a decade to get to the truth.

Lloyds bank continued to deny any wrong doing right up until the trial but have now had to admit the position and set aside funds to compensate the victims.

It remains to be seen if victims will get the true level of compensation that they deserve.

LIBOR Scandal

The LIBIOR scandal peaked at the height of the financial crisis in 2008 and involved various banks/financial institutions fixing the London Interbank Offer Rate (LIBOR).

LIBOR is the average of interest rates estimated by each of the leading banks in London that they would be charged if they were to borrow from other banks.

Bankers from various financial institutions colluded to provide information on interest rates which would artificially increase or decrease LIBOR so that they could profit from the changes.

The LIBOR scandal was significant due to the role LIBOR plays internationally in determining the price businesses pay for loans and individuals pay for mortgages, and it is also used in derivatives pricing. In aggregate LIBOR underpins over $300 trillion of loans/transactions globally.

The scandal dates back to at least 2005 and potentially as far back as 2003.

Regulators in the UK and USA have fined banks in excess of $9billion dollars although in addition many borrowers and other businesses/institutions affected have commenced legal action to recover losses made.

Tailored Business Loans

Interest Rate Hedging Products (IRHP’s) and in particular interest rate SWAPS have been widely publicised following the FCA scheme which was set up to ensure that bank’s provide compensation to SME’s adversely effected by these products.

Most businesses are unaware that they can get compensation in relation to the misselling of Fixed Interest Rate-loans (sometimes referred to as Tailored Business Loans) which are not regulated by the FCA and not included within the FCA compensation scheme.

These fixed interest rate loan products were actively sold by some bank’s and were specifically designed to avoid FCA regulation. They generally included an IRHP embedded within the loan and, as a result, carried the risks of an IRHP product but without the safeguards provided by the FCA.

The loans were sold on the basis that interest rates would increase without adequate disclosure of the risks and implications of the product, especially in a prolonged low interest rate environment. This can result in serious business debt problems.

AFT have helped clients obtain compensation for these products even in cases where the loan has been repaid and the clients have moved banks.

Global Restructuring Group (GRG)

The Global Restructuring Group was a separate division of Royal Bank of Scotland which was established to manage business clients who may experience some element of financial difficulty.

However a number of serious allegations have been raised about GRG’s actions as, rather then help turn around businesses transferred into GRG, the group’s aim was to secure as much profit as possible for the bank.

GRG’s action were first highlighted by Lawrence Tomlinson and some of the ways business were destroyed at the hands of the bank include extortionate fees/charges, aggressive debt restructuring and debt for equity swaps.

The bank also used a further division of the bank called West Register to buy assets of companies managed by GRG and there are also examples of the bank actively looking to create a default on a loan facility in order to justify transferring a business to GRG.

RBS have now released a formal apology for its actions and have set aside £400m to compensate customers affected by GRG.

If you would like to discuss how your business has been affected by GRG’s actions then please get in touch.

Enterprise Finance Guarantee (EFG) Loans

EFG is a government backed lending scheme designed to promote lending to small businesses which would not normally be able to obtain funding due to a lack of, or insufficinet, security.

The Government provides the lender with a guarantee for 75% of the loan in order to share the risk in the event a borrower defaults. However the borrower remains liable for the full amount of the loan and the lender must realise any security obtained from the borrower before it can rely on the Government Guarantee.

Whilst the EFG scheme is available to promote lending to small businesses some business borrowers have expressed concern that the scheme has been used by Banks to enhance their own position with little or no benefit to the borrower.

In addition some borrowers have been led to believe that they would be supported by the Government guarantee and, as a result, they would only have to repay 25% of the loan.

If you have obtained an EFG loan and would like to talk through your particular circumstances then please get in touch.

Interest Rate Hedging Products

AFT have been actively assisting their clients in getting financial compensation from banks involved in the misselling of Interest Rate Hedging Products (IRHP’s).

An interest rate SWAP is a type of complex financial derivative (an IRHP) although there are other products including CAPS, COLLARS and many more.

Interest Rate Hedging Products (IRHP’s) were marketed on the assumption that interest rates would increase, but they were overly complex and speculative instruments.

Banks encouraged the sale of these products to their customers and, in many cases, the full implications and risks were not disclosed.

The compensation for those companies affected by the Bank’s actions comes in two parts:

  • Basic Redress — the direct costs paid by SMEs for these products.
  • Either a rate of interest paid on the Basic Redress sum, or an amount equivalent to other losses incurred by the SME as a result of being deprived of the funds.This is commonly referred to as “Consequential Losses”.

Most Banks have agreed to repay Basic Redress claims, but have been less forthcoming in accepting Consequential Loss claims.