Some eight years on from the financial crisis of 2008, many people would think that the crisis is now over. For some individuals and company’s alike the nightmare continues daily. So what is happening?
Ulster Bank’s parent company, Royal Bank of Scotland, set up their ‘Global Restructuring Group’ in the wake of the recession to assist struggling businesses, with the premise of placing borrowers there on a temporary basis until normal service could be resumed.West Register (Northern Ireland) Property Limited was somewhat different in that it acquired discounted assets from customers with a view to realising profits for the bank at a later date.
In reality though, businesses placed in the GRG continued to struggle, with many eventually failing and going into administration. The causes were varied from normal trading conditions which could have been expected at that time as a result of hugh volatility in different sectors right through to what has been describes as “systematic mismanagement of customers by the Bank”.
The main bone of contention with clients was the triggers for moving a case from mainstream lending to GRG or at its outset Specialist Lending Services or SLS as it was known. A key indicator used by the bank primarily focused on covenant breaches such as debt service, interest cover and Loan to Value (LTV). An area that has now been brought to the fore is that a deterioration in LTV was consistently being used as a covenant breach and GRG trigger event. Business owners have reported that their businesses were valued at an unrealistically low figure by the bank, (these valuations were by unqualified bank staff at times and external valuers). Once moved into the GRG the clients were then put under serious pressure to sell their assets to repay loans. Typically the bank would seek disposal of the most valuable assets first which were in themselves the core assets of the company. This is were invariably the problems stated.
In 2012 for instance it was reported that 1483 businesses were moved into GRG as a temporary solution, however only 452 businesses were actually returned to ‘normal’ banking. So the question is, what has happened to the 1031 clients that did not return to mainstream? Some did refinance with the help of private equity, some business simply failed through normal attrition, other client were given undisclosed debt reductions to enable them to refinance at a lower debt level and some had an insolvency event triggered by the bank’s actions. The number of each type mentioned is not available to the market. It is also know that clients who did not fail in GRG but were retained within it without moving back into mainstream were later sold to US vulture funds.
In 2013 the actions of the bank in regard to small and medium businesses came under review. Investigations suggested that RBS had intentionally moved businesses into the GRG unit in order to profit from their losses. This was done by charging monthly and quarterly administration fees and increasing interest rates. The philosophy of increasing rates whilst in GRG is difficult to comprehend as the bank always indicated that interest rates were based on the probability of default (PD) of that client. The strange thing is that when a client was moved into GRG, their PD was moved to the maximum PD rating and as such once a client was put into GRG then their rates should in theory not have been moved any higher as their PD could could not go any higher. This was a common feature of GRG in that rates were continually ratcheted up during a client time in GRG.
Once in GRG clients were forced to sell assets, the bank could in turn reduce their own balance sheet – a move that has since been labelled as a “dash for cash” or in proper terms the bank was deleveraging their own position at the cost of their own clients.
The Tomlinson Report indicated that the GRG unit was set up solely as a profit centre for the bank. Staff had targets which were income based and also debt reduction based. Although this was initially denied by officials as RBS – on 27 occasions no less – in 2014 the bank did eventually concede that the GRG had in fact been a profit centre.
Although RBS have admitted to letting their customers down, they have denied intentionally causing businesses to fail. This stance has also been reiterated by the FCA, who have now cleared RBS of allegations – a decision that has met with uproar from affected business owners.
The Current Situation
In November 2016 RBS announced to customers via letter that they were committed to ‘putting things right’, and to that end were introducing a £400 million compensation scheme. The scheme will automatically refund around 4000 customers who paid ‘complex fees’, ie: fees that were not explained correctly or were mis-sold.
However the finer details of who will receive refund and what the criteria will be remain vague at the moment; similarly claims made for refunds or compensation will be restricted to insolvency practitioners for the businesses.
Many also feel that the compensation figure (which may be closer to £300 million after setup/admin fees are taken into account) does not reflect anywhere near the actual losses sustained by many businesses.
An official complaints procedure has now been setup and overseen by a retired High Court Judge. It has since been revealed that the complaint process will not be open to those who have lost their businesses, nor will they be eligible for claiming back on complex fees.
The terms imposed on both the compensation scheme and the complaints procedure will restrict many affected individuals from achieving any type of closure.
The reparations being introduced by RBS are limited to say the least, and unfortunately can do little for those individuals who have lost their business and whose livelihood was affected as a result.
In Northern Ireland our small and medium businesses are at the heart of our industry; protecting them and assisting them is key to the future of the economy.
Whether you still own your business, or have lost yours as a result of Ulster Bank/RBS GRG scheme, we ask you to get in touch with us on 07584659020 or email@example.com
Our Managing Director, Hilary Armstrong has spent 6 years with Ulster Bank in primarily SME and Corporate Banking. He has a detailed knowledge GRG and SLS and is keen to open dialogue with any Irish/Northern Irish customers. In the event that any previous bank customers of Hilary Armstrong require guidance on any matters pertaining from the above then these customers will be referred with their approval to another Chartered Accountants firm to insure independence in all case.
We have many clients who have encountered the above problems and we are happy to provide guidance and assess if you have a potential claim. We utilise the services of a number of external insolvency practitioners and litigation specialists who are willing to take on cases of merit. For a free consultation please call us or email us on any of the numbers above email addresses or telephone numbers.