RBS announced last month that SME customers will automatically be entitled to a refund of the fees that they were charged whilst being managed by the Bank’s Global Restructuring Group (GRG) between 2008 and 2013 following a review by the FCA.
This offer follows on from the payments RBS has made in recent years for the mis-selling of PPI and interest rate swap products which has resulted in £1.8 billion of redress costs.
This article examines possible consequences for SMEs that were in GRG during the relevant period which now are, or have been, in an insolvency procedure.
Between 2008 and 2013, many SMEs in financial difficulties were placed in the Bank’s specialist turnaround unit GRG. Whilst a customer was in GRG, RBS levied a number of complex fees on the customer but often failed explain the reasoning for charging them.
In January 2014, the FCA commissioned a review into RBS’s treatment of its customers. In September 2016, the FCA concluded that RBS:
Despite their adverse findings, the FCA estimated that over one third of the customers transferred to GRG would have faced insolvency regardless of RBS’s actions. Of the potentially viable SME customers transferred to GRG, the FCA concluded that most of them experienced some form of inappropriate action by RBS. However, the FCA also concluded that, in a significant majority of cases, it was likely that inappropriate actions did not result in material financial distress to these customers.
2) RBS’ RESPONSE
On 8 November 2016, RBS announced that:
RBS will review all customers individually to determine if a refund is due. Once that review is completed, RBS will write to SMEs to advise what refunds might be payable in order to arrange payment, together with any accrued interest.
Although the Bank will automatically refund the fees paid, RBS will apply either legal or contractual set off where it believes it is appropriate to do so.
If the SME customer is in an insolvency process, the refund (subject to any set-off) will be payable to the appointed insolvency officeholder and not the former directors / individual trader as the refund will constitute an asset of that company / the trader’s bankruptcy estate. This will apply even if the SME has been dissolved or the individual partners have since been discharged from bankruptcy.
4) WHAT HAPPENS IF THE SME HAS BEEN DISSOLVED
Some corporate SMEs owed refunds will no longer exist, having been dissolved at Companies House. Therefore for the company to receive the refunded fees, a court application to restore the company to the register will need to be made. Once restored, the company will be returned to the position it had previously been in when it was struck off. However if the company had been in Administration prior to the strike off, it will not mean that the company will return in Administration. This is because the Administrator may have resigned prior to dissolution or alternatively, their appointment may have ceased to have effect if more than a year has passed since their appointment. In those circumstances, directions from the court will need to be sought to clarify how the company, once restored, will be controlled.
In a similar vein, if the company had been in liquidation, the court may not have the power to appoint the former liquidator, particular if the liquidator had vacated office prior to dissolution. On restoration, the court could make a winding up order on “just and equitable” grounds, leading initially to the appointment of the Official Receiver as Liquidator, although the court sometimes overlooks this and appoints a named insolvency practitioner.
Once restored, the insolvency officeholder will be able to reclaim any refunded fees from RBS and distribute them to creditors in the normal way.
5) CONSEQUENTIAL LOSS CLAIMS
Despite the FCA’s conclusions, some SMEs may have suffered other losses as a result of cash-flow restrictions caused by RBS’s charges which, taken together, had a negative impact on the SME’s business.
RBS will not be making automatic payments for consequential losses. Therefore any SME wishing to seek compensation for consequential losses from RBS should first submit a complaint under the procedure being overseen by Sir William Blackburn and may need to resort to court proceedings if no satisfactory redress is achieved.
Once again, RBS’s actions during the financial crisis of the last decade are coming under scrutiny as a result of the way they treated their customers. Although this issue only affects RBS, it may well be that in time other banks find themselves having to make similar redress for the fees they charged their customers.
Further information can be found at:
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.