Suing your bank: ‘They sold me a swap: I was a dead man walking’

The Independent

Jamie Dunkley Saturday 08 August 2015

 ‘Administrators turned up, changed the locks and took control.’ A businessman tells Jamie Dunkley why he is taking Barclays to court in a case that will hinge on claims it manipulated the Libor rate

Jason Schofield was on holiday in Italy when the call came from Barclays: “You have 24 hours to repay £21m or we are putting your company into administration.” Sitting with his family near a lake in Lazio, Mr Schofield knew he had no chance of making the payment within just one day.

“I pleaded with the bank to give me time to get back from Italy and try to find a solution, but it seemed they weren’t interested,” he said. “The next day, administrators from Deloitte turned up, changed the locks and took control. That was that.”

The repayment demand took Mr Schofield by surprise. For three years his indebted company had been in Barclay’s business support restructuring unit, paying almost £1m in additional fees to the bank. During that time he had halved the amount of debt that he owed Barclays and had not missed a single interest payment.

“We were stunned,” said Mr Schofield.  “I don’t want to overdramatise the moment, but it really was a shock. You just don’t think it can happen to your own company.”

The date Barclays took control of Mr Schofield’s business was 20 August 2013.

Two years on and the Leeds-based businessman is finally hoping to get answers to why the bank took the decisions it did. In one of the most high-profile legal claims to have emerged from the financial crisis, Mr Schofield is suing Barclays for more than £50m, claiming that the bank mis-sold him an interest rate swap having allegedly manipulated Libor, the interest rate on which the swap was predicated. Barclays has said it will “vigorously defend” the case, which is set to be heard in the High Court next year.

Mr Schofield is fighting to get back the money he claims he lost following Barclays’ decision. But he says he is also fighting to find out exactly what happened at Barclays that led the bank to make those decisions.

“We had been in business support for something like three years before Barclays pulled the plug,” he said. “During that time we had sold off parts of the business to reduce debt. We paid the bank huge sums in fees and had seen our interest payments rocket from just over three percentage points over Libor to a top rate of nearly 12 percent above the base rate.  But we had never missed a repayment. On top of that, we were growing. It’s very hard to understand what was motivating Barclays.”

For Mr Schofield, the game-changing moment came in 2012 when the financial regulator, then the Financial Services Authority, published a report identifying “failings” in how swaps had been sold by the main UK banks. The report was quickly followed by a redress scheme.

“We looked at the report and then looked at the swap we had been sold – and realised something may be up,” said Mr Schofield. “But it was only when we took legal advice that we realised quite how bad things were.” By this time his company owed £7m on the swap – an enormous amount against group debt of £14m. However, it was still managing to service the swap and the associated loan.

According to Mr Schofield, what alarmed him even more than the £7m liability the swap had created was what he learnt about the nature of the financial instrument.

“I was told it was the most toxic swap the lawyers had ever seen,” he said.  “Barclays were allowed to exit the swap if it turned against them, with no penalty.  If the swap turned against us – as it did – we would have to pay.  It was a one-way street.”

It was at this point, said Mr Schofield, that he made a strategic error.  “We rescinded the swap,” he recalled. “That was when Barclays pulled the plug on the business.”

In defence documents seen by The Independent, the bank describes Mr Schofield and his management team as “sophisticated and experienced business people with considerable experience of interest rate hedging products.

“They had access to and relied upon their own solicitors for advice where appropriate,” Barclays adds in the document. It also points to the fact that the business had taken out structured products with  Yorkshire bank in the past, which it claims were “considerably more complicated than the interest rate swaps in these proceedings”.

Helpless to protect his business, Mr Schofield watched the administrators saddle it with even more fees, close to £1m, as they sold off the company’s assets and made staff redundant.

In the end he was left with a rump of a business that he eventually managed to convince Barclays and Deloitte to restore to him from administration.

“The irony is that both Barclays and Deloitte knew my business from the inside out.  They were both key clients,” Mr Schofield said. “We stored all of Barclays’ mortgage documents and title deeds. We did similar work for Deloitte.”

Mr Schofield is well aware that his case is laced with black humour. He recounts how in the early days of his dispute with the bank, when he still had control of the company, he asked Barclays for documents relating to his account. That could take time said the bank – it may be some months before we can access that sort of information.  Give me permission to look in my warehouse, shot back Mr Schofield, and I’ll have them for you in the hour.

While it will be up to the court to decide the merits, or not, of the case, Mr Schofield believes there are wider issues at stake – such as Libor manipulation and the allegations that were brought to light in the Tomlinson report on banks’ treatment of businesses in distress.

In many ways, Mr Schofield is picking up where fellow entrepreneur Gary Hartland left off.

Mr Hartland was the first person to bring a Libor claim against Barclays. Although the case, Graiseley Properties v Barclays, never went to a full hearing, it attracted huge publicity and threw a new light on the behaviour of the banks.

The case set the tone for much of the litigation against banks that followed. Mr Hartland raised the spectre of Libor manipulation in 2012, before it had been disclosed by the regulators, and forced the bank to hand over reams of information about its behaviour.  But before any of that material could be presented in public through the courts, the case was settled.

“Gary never went to court,” said Mr Schofield. “He never put the directors on the stand. That’s what I intend to do.”

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