Business support may be the banks' next headache, says Aidan Briggs
Two recent reports—the RBS Independent Lending Review led by Andrew Large and Lawrence Tomlinson's Banks' Lending Practices: Treatment of Businesses in Distress —have sought to shed light on the "business support" measures imposed by lending banks upon small- and medium-sized enterprises in distress. Such behaviour has come to the fore in mis-selling litigation, as it tends to multiply the burden of interest rate hedging or other products upon struggling businesses.
The key issues
Both reports identify four key issues:
- Lenders engineering “distress” in client businesses by restricting credit or arbitrarily revaluing assets (eg on a “fire sale” basis);
- Business support imposing dramatic changes to lending terms by reason of that “distress”, accelerating the client’s decline;
- Perverse incentives to push viable businesses into insolvency due to increased margins and fees; and
- Conflicts of interest for bank-appointed valuers, accountants and managers with a view to future insolvency.
The frankly delicious facts of RBS v Highland Financial Securities [2013] EWCA Civ 328, [2013] All ER (D) 65 (Apr)—in which the taxpayer-owned bank
