Cat Maclean, a Partner and head of dispute resolution at MBM Commercial, recently gave the following talk to the All Party Parliamentary Group on Fair Business Banking at Westminster.

A great many of our clients have seen their debt, whether it was with the Clydesdale, Allied Irish Bank, or some other bank, transferred by the bank to vulture funds such as Cerberus, Promontoria Henrico, Clipper. In a number of cases, our clients had solid claims against their bank, whether for breach of promise or other misfeasance, and we had actually raised proceedings against the bank in question. Despite the fact that million pound claims had been lodged in court, these debts were blithely transferred to vulture funds who began aggressive pursuit of their debt. As you can imagine, they weren’t best pleased to learn that the debt was disputed and it has been an uphill struggle to persuade them that they must await the outcome of the court proceedings. These situations are difficult and distressing for the borrower. In these situations though, the borrower retains a control of sorts: it is his company, his decision to pursue his bank, and his choice to expend precious funds on the fight. How much more distressing, then, when all control is taken away from a director of a company which has been placed in insolvency. When this happens, all the control, and all the choices, rest with the liquidator. I thought the simplest way to illustrate this, would be to tell you a true story. This is the story of a small property rental company, specialising in short term apartment lets in Edinburgh city centre. They were a small, successful company, but unsurprisingly in the economic meltdown unleashed in 2008, times were hard. The business had been sold a fairly toxic product by their bank, known as a Tailored Business Loan or “TBL”. These products in all respects operated in exactly the same way as derivatives, involving the same increase in monthly payments when interest rates fell, and the same issue of high breakage charges making it impossible to refinance or repay the loan early. However, they were particularly toxic products, perhaps even more so than swaps because despite the way they worked, nevertheless, TBLs are NOT regulated by the FCA. As a result, when the FCA set up its Redress Programme to compensate those who had been missold, the programme excluded the hundreds of thousands of businesses who were missold TBLs and who had incurred significant increased cost and who were locked in for many years due to high breakage charges – as much as 30 or 40% of the underlying loan. In the case of the company I was telling you about, by June 2010, they had paid around £65k of additional interest as a result of the TBL. Unsurprisingly, they were struggling, and as a consequence their overdraft crept up – to all of £30k. And so, in June 2010, because of the desperately troubling overdraft of £30k, the company was put into the bank’s recoveries group. Bear in mind, that at the time that the £30k was being demanded by the bank, the company had paid over twice this amount in additional interest under the TBL. Had it not been for overpaid interest, the company would not have gone into recoveries. If we wind the clock forward to February 2013, at this time the Clydesdale had come under serious pressure in relation to their TBLs, and had undertaken to follow the same basic guidelines as those applied in the FCA Review Process in relation to companies in difficulties, and had undertaken not to take any adverse steps to place any such companies in an insolvency process whilst a complaint in relation to the misselling of a TBL product was underway. The company had submitted a claim for the missale of their TBL, and had been told that their claim was being considered by the bank. However, In February 2013, despite the Clydesdale’s promises, they pushed the company into administration, as a result of a default that had arisen in relation to an overdraft facility – an overdraft facility that would never have been required but for the TBL. At this stage, all the company’s assets, including its claim against the bank, were immediately stripped from the hands of the directors and ownership passed to the administrator. This meant the administrator could do exactly as he pleased with everything that had formerly belonged to the company.