Lloyds alleged to have ‘artificially distressed’ small business customers

Financial Times

May 17, 2015 8:14 pm

Jane Croft

Lloyds Banking Group “artificially distressed” small business customers after they were “cynically” transferred to a support unit as banks sought to bolster their own balance sheets in the wake of the financial crisis, it has been alleged.

The legal application, due in the High Court this year, centres around businesswoman Julie Ann Davey, who has applied for the removal of two partners of KPMG as joint administrators to Angel Group, her former property development company.

HBOS, and later Lloyds when it took over HBOS, were bankers to the group’s companies which went into administration in April 2012. Lloyds is not involved in these legal proceedings.

The case will be closely watched following sharp criticism of banks’ treatment of small businesses after the financial crisis.

Last year Royal Bank of Scotland was accused in a report by Lawrence Tomlinson, adviser to then business secretary Vince Cable, of attempting to profit from the financial distress of small firms in its business restructuring unit.

RBS denies the claims and a review it commissioned from law firm Clifford Chance found no evidence of the bank systemically defrauding customers.

Stephen Davies QC, acting for Ms Davey, said on Friday this was a lead case for legal actions brought by small businesses.

He alleged that “what these cases have in common” is that from 2009 the banks being bailed out by the taxpayer — notably Lloyds/ HBOS and RBS were “pressured by the government to ensure their own survival” and “earmarked the debts of their own customers for liquidation”.

He told the court that “at its simplest” the allegation is that “the bailed out banks artificially distressed customers and defaulted them in order to improve their own balance sheets.”

In the case of his own client, he alleged to the court that the earmarked customers at Lloyds were “cynically” transferred to the “notorious” business turnround division in September 2009.

Once in the “bad bank”, Mr Davies alleged that customers were then dealt with by insolvency professionals employed by the banks whom he claimed had been likened to “morticians” to prepare customers for administration.

He alleged these practices had been investigated in the Tomlinson report which was published in February 2014. He claimed to the court that Lloyds, which is not a party to this case, “lurks in the shadows” of the proceedings.

Mr Davies told the court she wanted to replace the KPMG partners with independent insolvency practitioners who could then investigate the reasons for Lloyds placing Angel into its bad bank.

Mr Justice Newey in the High Court on Friday made it clear he was concerned only with case management and had “no view” about the substance of the allegations.

In a statement KPMG said: “The joint administrators wholly reject the allegations which have been made, which they consider are unfounded. The joint administrators consider they have acted appropriately and do not intend to comment further as there is an ongoing legal process.”

Lloyds said in a statement: “We are not a party to this application. As such it is not appropriate for us to comment on the case. No action has been brought against Lloyds Banking Group.

“The clear focus of our Business Support Unit is to restore customers to financial health and we will always look to work consensually with them to achieve this aim, recognising that this will not be possible in a small number of cases.

“Our Business Support Unit is not a profit centre and we will only ever use receiverships or administrations as a last resort,” it added.

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