Freelance journalist
Share this content

KPMG and Lloyds in small business legal action

21st May 2015
Freelance journalist
Share this content

Lloyds Bank “artificially distressed” small business customers after they were transferred to a support unit as banks tried to strengthen their own balance sheets after the financial crisis, it has been alleged.

The legal application, due in the High Court this year, has been made by businesswoman Julie Ann Davey. She has applied for the removal of two partners of KPMG as joint administrators to Angel Group, her former property development company, the Financial Times reported.

HBOS, and later Lloyds when it took over HBOS, were bankers to the group’s companies which went into administration in April 2012. Lloyds is not involved in these legal proceedings.

Lloyds, which is partly owned by the state, is the second bank to be accused of profiting from small businesses' financial distress.

In 2013, in a report to the then business secretary Vince Cable, Lawrence Tomlinson accused RBS of not giving small business the chance to apply for loans and then profiting from their financial distress.

RBS denies the claims and a review it commissioned from law firm Clifford Chance found no evidence of the bank systemically defrauding customers.

Stephen Davies QC, acting for Davey, said the case was a lead one for legal actions brought by small businesses.

He alleged that “what these cases have in common” is that from 2009 the banks being bailed out by the taxpayer — notably Lloyds,HBOS and RBS were “pressured by the government to ensure their own survival” and “earmarked the debts of their own customers for liquidation”.

According to the FT, he told the court that “at its simplest” the allegation is that “the bailed out banks artificially distressed customers and defaulted them in order to improve their own balance sheets.”

Once in the 'bad bank', Davies alleged that customers were then dealt with by insolvency professionals employed by the banks whom he claimed had been likened to “morticians” to prepare customers for administration.

In a statement to AccountingWEB, KPMG said: "The joint administrators wholly reject the allegations which have been made, which they consider are unfounded. The joint administrators consider they have acted appropriately and do not intend to comment further as there is an ongoing legal process."

Lloyds said in a statement to the FT: “We are not a party to this application. As such it is not appropriate for us to comment on the case. No action has been brought against Lloyds Banking Group.

“The clear focus of our Business Support Unit is to restore customers to financial health and we will always look to work consensually with them to achieve this aim, recognising that this will not be possible in a small number of cases.

“Our Business Support Unit is not a profit centre and we will only ever use receiverships or administrations as a last resort,” it said.

Are these alleged mistreatment of small business by bank two isolated incidents or part of a wider pattern? AccountingWEB would like to hear accountants' experience.

Replies (8)

Please login or register to join the discussion.

By moneymanager
21st May 2015 11:28

Whiter than white?

In 1989 I met a businessman who had some years before been negotiating to sell an oil recycling business to one of his customers. The purchaser withdrew citing their intention to purchase from the liquiduator. That was the first the chap had heard of the misfortune of his business. That one was Grant's.

Thanks (1)
By ksagroup
21st May 2015 11:35

asset valuations

This is always going to be tricky especially where property assets are concerned.  Were their assets undervalued??  The thing is that during the financial crisis assets were in fact worthless for a period of time as no one wanted to buy property.  So if a property business got into financial trouble and couldn't pay the bank how much were their assets worth "at that time"  Impossible call really.  

Thanks (1)
By maxmillion
21st May 2015 22:17

Personal mortgages also treated similarly

I purchased a Buy to Let at the peak of the market only I didn't know it was the peak. I just hoped that it would increase a bit by the time I retire to provide me with a suitable retirement income. Got a mortgage easily enough through GMAC / Bradford & Bingley. Later bought by the government.

After the crash I was in severe negative equity but continued to make the payments but eventually had to move in to the house which technically is against the rule because it is a buy to let.

For the past years I have been paying the same high rate of interest and the bank/government is completely uninterested or unwilling to help me move to another product or company as they aren't issuing new products while they try to reduce their mortgage book. Other mortgage lenders would usually allow you to re-mortgage albeit at a fee. If they would just convert it to a residential mortgage, my rate could be slashed instantly.

These snakes don't provide the option and continue to penalise me until I finally get sufficient equity to move myself. And it is not that easy to pay in more than I am already.



Thanks (0)
By downrightabsurd
23rd May 2015 08:18

The Banks and their "Advisors"

The statement that the banks and the people they use, like KPMG, that "we will only ever use receiverships or administrations as a last resort" is correct.The way they do it is to take control of who the company concerned pays. In their loan contracts there is a clause that allows the banks to appoint "advisors" and before the company pay any creditors the advisors must approve it. The one organisation they always refuse payment to is the HMRC. They deliberately run up debts to the HMRC so that the HMRC has no choice but to put the company into receivership. I think this is a "conspiracy to defraud" the owners of the companies concerned and it is a regular practice. If you have a company that runs into difficulty and the banks appoint an advisor who tells you not to pay the HMRC watch out they are try to put you into liquidation. The bank gets their funds back and interest as secured creditors, the advisors get their fees because they are appointed receivers and you get nothing. I have seen this happen. I also know of instances where it has happended with other banks and other big 4 advisors.

Clifford Chance said there was no evidence of criminal activity when they looked at the Banks. They looked at 111 out of 19,000 and didn't look very closely. Or did they not know that if you want to put a company into liquidation the best way to do it is not to pay HMRC. Even laymen know not paying the taxman causes problems, how come Clifford Chance don't or was this a case of here's enough dosh don't look closely.  

Thanks (1)
Replying to penelope pitstop:
By moneymanager
23rd May 2015 12:47

No Chance!

Absolutely downrightabsurd. I was once trying to have a claim admitted in an insolvency and the VERY big one of the big four used CC as their legal adviser. The claim partly hinged on the claimant's status as having supplied on a "contract for services basis" rather than a contract OF service. Either the CC solicitor did not know the difference (difficult to believe) or was deliberately trying to pull the wool over my eyes (very easy to believe and with full conivance of the insolvency firm given what it had taken to get to that point). Insolvency (mal) practice is far too common and is still the accountancy equivalent of the Wild West.

Thanks (2)
By downrightabsurd
25th May 2015 15:20

You would be surprised at the number of qualified accountants who walk into loans with their eyes open and do not know what they are doing.

Do not take out bank loans if you have a seasonal business. 

Always make sure that you have a good "cushion" before the bank covenants come into play.

Do not sign a bank loan which allows to bank to appoint "advisers" which you cannot refuse.

Do not sign a loan agreement that allows the bank to appoint advisers who can control who you pay.

Do your homework, there are good people out there.

If the bank starts pressuring you to do the deal back off.

Always assume the banks are crooked, because in the past that is exactly what they have been. If you want to lose everything don't not take out bank loans unless you know exactly what you are letting yourself in.



Thanks (1)
By redboam
31st May 2015 05:19

Theft by Stealth

What is being described here is nothing less than a form of theft and while the fact that our banks with their growing list of malpractices towards business as well as the public at large are busily engaged in it comes as no surprise, the real worry is that leading accountancy firms have joined the party most certainly is. Perhaps now that the profoundly ineffective Cable has gone from the BIS, we might hopefully see some action to remedy this. If not, all the talk of helping small businesses flourish in this country will be just another dose of meaningless political rhetoric.

Thanks (1)
By DaisyD
02nd Dec 2019 10:52

Stephen Davies QC misrepresented the facts of this case and erred on law. Snowden J found against his client and dismissed claims by Ms Davey that administrators of Angel House Developments Ltd acted in breach of duty by accepting directions and instructions from the bank appointing them as to the conduct of the administration or that this led to a sale of the company's only asset at an undervalue. Mr Davies' poorly reasoned advice to his client, fudging of facts and sloppy legal analysis were harshly criticized by the Judge. By pushing Ms Davey down a slippery slope of a costly protracted litigation bound to fail Stephen Davies QC instigated his client's personal bankruptcy.

Thanks (1)