By Kalvin P Chapman
During the IRHP review, most lawyers became aware that where it could RBS would impose an alternative IRHP product on an SME. The alternative product meant, over-all, that RBS paid little or nothing. As such, any dispute with RBS must include a consideration of what to do if RBS rejects the complaint.
With the GRG Review complaints procedure that has been put in place, RBS is under no regulatory or legal requirement to carry out the GRG review in accordance with anything other than the most minimal requirements imposed by the FCA. The FCA is in fact quite powerless to order RBS do much regarding GRG. That is because normal commercial banking and lending is governed by the bank’s terms and conditions and the contracts entered into. There are no regulations and very little legislation. The FCA can therefore only order RBS to undertake complaints properly, it is powerless to force RBS to do anything else and cannot punish RBS if it elects to reject a GRG complaint. The FCA also refuses to reveal what it actually found during the two years of investigation. We eagerly await the election of the new FCA Chairman to see if he or she agrees to release the report.
One of the actually helpful things RBS has done with its GRG review is to agree that a company that has been dissolved does not need to be put back onto the Companies’ House register unless and until RBS makes an offer of settlement and that settlement would result in a net positive payment to the company. The costs and time fo putting a company back on the register would have put far too many businesses off complaining in the review, so we welcome this decision.
Contemplating the next steps in the event of RBS rejecting a complaint, Muldoon Britton’s Kalvin Chapman contacted the Financial Ombudsman Service to ask what their position is. Below is the email exchange.
Essentially, the Ombudsman’s position is that if a company has been dissolved then as it has no legal standing the Ombudsman is unable to undertake a complaint on behalf of the company. The result of this is if you wish to complain to the Financial Ombudsman you must
(1) ensure that the company is put back on the register and
(2) ensure that if you received the upper limit of £150,000 that any debts owed by the Company from its insolvency would not entirely swallow up the damages.
This makes a GRG complaint less attractive, and we are very disappointed by the FCA.
The Ombudsman’s telephone operator advised that my questions below are too technical and you would need to consider them.
In November 2013 Lawrence Tomlinson issued a report as entrepreneur in residence at the dept for Business Innovations & Skills. This report alleged that RBS had a division (GRG) that was designed to strip SME business customers of their assets and then liquidate them. It was alleged (and continues to be) that this was done in order to help raise urgent capital for the bank and remove risky or defaulted loans. In January 2014 the FCA agreed that this needed to be investigated and a s. 166 report was ordered from two auditors. That report was issued and you can see the FAC’s statement regarding this: https://www.fca.org.uk/news/press-releases/review-royal-bank-scotland-treatment-customers-referred-global-restructuring-group
The review ordered by the FCA was an automatic refund of fees charged by the bank,. This was done and I do not think there have been any questions raised about how RBS did this.
The second part is a specific GRG Complaint Process. This is to allow SME businesses to complain to the bank about their time in GRG. As a consequence of a substantial proportion of the businesses ending up in liquidation and bankruptcy the Bank has agreed that former directors do not need to put their companies back on the register in order to make the complaint. If ultimately RBS make an offer to pay damages, and this amount is greater than the outstanding sums owed by the company at the point of dissolution then the company needs to be put back on the register, the damages transferred and then distributed in the normal way. The view, presumably, is that the former directors therefore are not put to such expense if there is ultimately no payment made.
This therefore raises the question of the FOS. Historically FOS has refused to allow complaints by dissolved companies because if it is dissolved then there is nothing there complaining and no way of putting it right afterwards. This meant that businesses involved in IRHP and Tailored Business Loans could not seek damages through FOS without first expending significant sums of money putting the company back on the register with no guarantee of success.
Given that the Government, the FCA and RBS acknowledge that it would be unfair to force the directors to put the companies back on the register with no guarantee of success, has the FOS taken a decision yet on how to settle this? Will they agree with the FCA and RBS and allow former directors to make complaints and only put the business back on the register upon a successful award or will FOS continue its current position of requiring it to be on the register in order to initiate a complaint.
I can, of course, provide further information if you identify what is required and I will provide it.
I set out below an example so you can understand:
AB was made up of two companies, with the managing director providing cross guarantees and a PG. GRG took them in 2009 and in 2011 they were put into administration. The companies are now in liquidation. I am instructed by the liquidators.
Their complaint is that they had a thriving business. It is alleged that RBS had no right to take them into GRG, that the valuations used to get an LTV breach were not true and accurate values, that RBS used underhand tactics to make sure the businesses went into GRG by giving a promise of lending so that both companies would not look to refinance with [another bank]. When it was too late to get the due diligence done by [another bank] RBS revealed that they no longer wished to refinance the loans and moved them into GRG. AB’s directors contacted [another bank], who six months earlier really wanted to refinance them, they were advised that [another bank] had a policy of not taking businesses that were in other banks’ turn-around divisions. They therefore looked at the refinance again but ultimate chose not to for the sole reason of AB being in GRG.
AB’s directors therefore wish to seek damages. RBS has allowed them to make the complaint without putting the two companies back on the register. However, at present it would look as though it will not be possible for AB to complain to FOS because FOS would not recognise it until it had, at great cost, been put back on the register.
I look forward to hearing from you.
Financial Ombudsman’s Response 10 October 2017
Dear Mr Chapman
Thank you for your email.
I can confirm that there’s been no change in the ombudsman’s position when it comes to looking at these types of complaints.
RBS as the company being complained about has the ability to make an agreement to deal with complaints from dissolved companies should it wish to do so.
However for us the question is an issue of jurisdiction. So the question for us is not so much will we look at these complaints, but rather do we actually have the powers to consider complaints by dissolved companies?
As the company has dissolved it no longer meets the definition of being an eligible complainant as there’s no entity in existence to actually bring the complaint. Where there is no eligible complainant we don’t have the power to consider the complaint.
I hope that helps answer your query.