Written evidence submitted by Johnathan Kinder MA FCA, Kinder Consultants

                            [SME 0145]

Background Briefing

Introduction

I am a Chartered Accountant involved in advising the owners of various SME’s which have, over the past few years, ended up in Administration as a result of actions taken by their banks/finance companies.  A number of us have recently set up a not-for-profit organisation called The Serious Banking Complaints Bureau (SBCB).  Its objective is:-

To investigate and take action to remedy injustice and unreasonable loss caused to owners of small or medium sized businesses by unfair and possibly fraudulent decisions and actions taken by powerful banks or other financial institutions.  By negotiation and lobbying to achieve a more balanced and stable financial relationship between such organisations and their small or medium sized customers. 

The objective of this paper is to provide a brief but factual overview of what I believe to be happening.

The Case Studies

I summarise below the fate of four businesses, which, in my opinion, were forced into administration by the actions of their Bankers.  I have been asked to limit this report to a few businesses for the sake of easy initial reading, but these cases are representative of a much larger number of businesses which have suffered the same fate.  In all these cases there is a wealth of documentary evidence to support the details set out below.

The cases dealt with below have been chosen to illustrate three distinct ways in which banks exploit their SME customers:-

• Where the largest asset on the customer’s balance sheet is the sales ledger and the value of this ends up in the hands of the bank, the administrator and associates with substantial sums sometimes being unaccounted for.
• Where the bank essentially ‘confiscates’ (takes) money belonging to the customer on the pretext it is needed to insure the bank against a “risk” – but where, in this case, the risk is wrongly calculated.
• Where the largest asset on the customer’s balance sheet is property and the value is wrongly depressed in valuation seemingly to provide a pretext for administration.

Before administration three out of the four companies were profitable, solvent and had not defaulted on their Bank payment commitments.  In the case of the fourth business (a Charity) there had been a major building expansion programme, known of by the bank, and was operating at break-even.    

The possibility of fraud

I believe it is possible that there has been fraud in the cases as defined by the Fraud Act 2006. In any criminal case, the Police usually look for three things – motive, opportunity and means.

Motive - Post 2008, the Banks were (and are) driven by a bonus based culture at all levels, and seem to have had a policy of cash and profit generation at all costs to stabilise their balance sheets and improve their liquidity.

Opportunity – In all the cases reviewed, the one constant is the Banks were able to generate large amounts of income in a very short time frame that would have taken years to earn in normal banking circumstances

Means - The Banks always occupy a position of great power in relation to SME’s.  The familiar refrain is “do what we say or we will pull the plug”.  Banks now always insist on business owners signing complex contracts that can be used by the banks to force their customers to do whatever the bank bids and allow them, in effect, to control the business. In the first type of case where bank funding involved invoice discounting/factoring of debts bank executives were able directly influence company operations.  At best they acted as Shadow Directors - at worst they were guilty of contravening the Fraud Act 2006. 

In my view all the cases in this report (and the many others I have reviewed) tick all these boxes.

An overview

The British are a nation of people who believe in tolerance and fair play. In my experience, of almost 40 years, the crucial relationship between an SME and its bank has always been based on trust – and has generally worked well.  During my review of the four cases described below and others I have become convinced that this relationship of trust has now broken down.  The publication of the Tomlinson Report in 2013 has resulted in a growing recognition that there is an important problem here that needs attention.  The Report has, in some quarters, been dismissed as anecdotal.  This briefing sets out facts.  I hope that it will demonstrate that in many areas, the institution of honest Banking no longer exists.  The Banks have not only been acting illegally in cases such as Libor, PPI and Swaps but have also, it seems,  have been engaged in sharp practice or indeed fraudulent practices in relation to SME’s to achieve a rapid increase in bank profits - at the expense of business people, their employees jobs and creditors including HMRC.

I hope this briefing will assist the Treasury Select Committee investigate these issues fully and fairly so  that we can get SME business back on track helping the Country recover and deal with any wrong doing.

The Case Studies

I set out below a table showing the benefits that have accrued to the bankers, the administrators and their associates from the demise of these four businesses and the estimated cost to the Country in terms of jobs, benefits and lost taxation.

A.  Highlights

The Prize – funds acquired by bankers, administrators and their associates from the demise of the four businesses - £2,695,000

UK Jobs lost - 372.

Minimum cost to UK Treasury - redundancy payments / benefits £1,418,000

Funds returned to creditors after Administration – in three cases – nothing, in the fourth case 10p in the £.

B.  Some Questions

Who started the process leading to Administration?

In every case (and in other cases I have reviewed), the initial action that triggered the sequence of events leading up to the administration, was always taken by the bank, not the company or some unforeseen catastrophic event that had caught the Company unawares. There is always an explanation as to why the Bank took such actions, but in my opinion these are weak and highly questionable excuses which would be unacceptable if challenged in a court. They are never external events such as the occurrence of a large bad debt, or a dramatic fall in profits.

Why not find another bank?

One might argue that in the face of pressure from their banker the SME should try and find another Bank. In two of these cases they did just that but their current bank endeavoured, by various means, to convey the impression to the alternative bank that their clients were a poor credit risk. Why then did the Banks stop their clients moving to a new banker when the Banks’ core concern in regard to these companies was that the risk in continuing to support them was unacceptable? I believe the financial gain highlighted above and detailed below in just four cases, could explain why.  The evidence of these last two points seems to point to deliberate abuse of position - ‘a smoking gun’!

Do the Administrators fulfil their obligations to creditors?

There is evidence in all four cases that if the Administrators had endeavoured to fulfil their obligation to represent all the creditors more robustly, the results would have been very different.  There seems to be a trend for Administrators to follow “industry practice” which is not necessarily what Parliament would have envisaged when the office of Administrator was set up.  Here is a quotation from an email sent to me by one Administrator.

It is industry practice that a factor can charge a termination fee in addition to collection/agents costs. I am not saying that I agree with this.....

What is the way forward?

If, as I believe, these four businesses were driven into Administration unnecessarily and wrongfully, there is a case for redress.  The cost of reimbursing the losses sustained by the owners and creditors of these four businesses could be well over £10 million – and there are almost certainly hundreds of other similar cases.  Given the size of such liabilities we believe that they need to be dealt with in an imaginative manner.  We have a proposal involving life insurance which would deal with these liabilities without impacting the banks balance sheet and we would like to have an opportunity to present it.

This is a way of dealing with the past.  There is also the problem of reforming the current framework in which banks, SME’s and Administrators operate.  We also have some detailed proposals which will, we believe, ensure that the relationship between banks and their SME customers are put on to a more balanced basis – a necessary condition for the renewal of the relationship of trust which formerly existed in this area of the economy.

Table of Facts

The problems getting redress

Civil Action

It might be argued that the owners have redress in civil law to any wrong doing.  There are however formidable problems in obtaining redress from a bank after a business has gone into administration as follows:-

• By definition small business owners have no money.
• Taking civil action costs money and can last several years.
• In some cases ex business owners have other problems caused by their experiences.  Some have become ill through stress.  In other cases their time is fully taken up in survival.  Mr. Terry Clark, whose case is commented on below, is currently living in a caravan.
• Problems in finding good legal representation.  Most large firms of solicitors work for banks and are, or should be, prevented from acting against the banks by conflicts of interest.
• Problems in acquiring information from their banks.
• Contracts between banks and their customers are lengthy and usually drafted by the banks.  All banks issue similar contracts. They have become more complex since 2008. If a small business needs finance today, its banker will insist on a long and complex contract being signed.  The small business has no negotiating strength. The banks effectively have a monopoly and operate a cartel. Such long and complex contracts can be manipulated by the banks in ways unforeseen by the business owner.
• In the case of invoice discounting/factoring the legal contracts give the financing institution unfettered power to collect and other wise deal with the debts that are factored.  Administrators tend not to insist on the banks accounting in detail to them – inspite of the Administrator’s duty to all the creditors.  Yet creditors have an equitable interest in the debts once the banker’s loans have been repaid.  The equitable interest seems, in practice, to be ignored – to the detriment of the creditors including HMRC.

The Ombudsman

It might also be argued that the Ombudsman can help. In reality that is not the case

• The Ombudsman has no authority over commercial lending as this is unregulated.  Consequently the Ombudsman refuses to review a case as a whole even though difference arms of the bank may have worked as a Joint Venture. The Ombudsman only looks at the contract and not the wider implications of contract law or even the instructions of the FCA – see below.   Here is a recent quotation from Ombudsman in regard to the first case – Mr. Goddard was formerly Chief Executive of the business:-

We are able to consider Mr Goddard’s complaint, as guarantor, about the demand by National Westminster Bank for payment of his guarantee liability. But, as explained previously, my view remains that we are not able to investigate the complaint about RBSIF, as it does not come within our jurisdiction, nor a complaint about the actions of the RBS Group as a whole. There seems to be a reluctance in both the Ombudsman & the FCA to accept the possibility that something is wrong, possibly for reasons of self preservation because most personnel from these organisations go on to work for the banks. In the case of Wye Valley, the Ombudsman is trying to avoid making a decision and suggesting that the matter goes to civil courts, which they know plays back into the strategy of the Banks and is not a viable option

The FCA

Following the publication of the Tomlinson Report Clive Adamson, Director of Supervision at the FCA published a letter dted 29th November , 2013 containing the following:-

You are aware that commercial lending is not a regulated activity underthe Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Nevertheless, the allegations in these reports gave the FCA concerns as to whether firms are treating their customers appropriately, in particular those in financial difficulties. This may indicate wider concerns in relation togovernance and culture within firms, We expect firms to act with integrity across all of their activities.

The FCA has recently committed that all cases of potential criminality will with the support of the FCA, be fully investigated by the Police.

The Fraud Act 2006

The Fraud Act 2006 therefore offers a possibly effect way of obtaining redress if the FCA is good to its word. Section 4 of the Act relates to Abuse of position.  There are three “hurdles” that need to be jumped.

• A person is in breach of the Act if he or she occupies a position in which he is expected not to act against the financial interests of another person.  This seems to describe the position of a banker who would be expected to support a corporate customer as long as that customer is profitable.
• Intends either to make a gain for himself or another – and or cause a loss to another – and or expose another to the risk of loss.  The gains from the Administration of these four cases have been listed above.
• Dishonestly abuses the position he or she occupies.  As noted above a Banker occupies a position of extraordinary power in relation to an SME.  Repeatedly circumstantial evidence clearly points to the abuse of that position.

Parliamentary or political action

There is some indication of a general reluctance to expose the possible abuse of SME’s by their bankers.  For example here is a quotation from a letter received in 2013 from a Treasury Minister:-

This reluctance may be due to the widespread influence of the banks or perhaps to the fear of the effect that exposure of these practices may have on the finances and the credibility of the Banks.  Our view is that until this problem is fully investigated in a thorough and fair manner it will fester – and continue to inhibit the growth of SME’s – which is widely regarded as essential to the balance development of the national economy.

Why is bank borrowing to SME’s falling?  The pundits would argue that the Banks are reluctant to lend.  We would argue that the owners of SME’s are reluctant to borrow!

How does the ex-owner of an SME obtain redress?

The above analysis indicates that the scales are loaded heavily against the ex-owner in whatever avenue of redress that he chooses to take.  Some may continue to live in their caravan and abandon any thoughts of using their energies and enthusiasms to create businesses.

Case 1 - Wye Valley

I have reviewed over 250 documents relating to this case.

RBS Group agreed a package of financing for Wye Valley in February 2008.  For 12 months the arrangements worked well.  In the course of 2008 RBS gave a reference in which it was stated that they had every confidence in their customer.

It should be noted that in all the events set out below, various members of RBS acted together as a Joint Venture – NatWest plc(NatWest), RBS Invoice Finance Ltd (RBSIF) and RBS plc.

It should be noted that there was an agreement between the directors of the company and RBSIF that in the event of the company being put into administration the directors would be involved in the collection of the sales ledger – which would be of advantage since the directors knew the customer base.

In February 2009 a newly appointed accounting clerk failed to enter a few credit notes (valued at around £20,000 as compared to a sales ledger of well over £1 million) into RBSIF’s invoice discounting system.  RBSIF treated this as an “event” and proceeded to enact various measures that I believe were completely disproportionate:-

• The bank insisted that the company’s Finance Director be removed – he eventually resigned on 1st July, 2009.  The company was unable to find a replacement and remained without a Finance Director until the administrator appointed.  The accounts function of the company was run by Mr. Goddard – essentially a cheese salesman!
• The bank unilaterally changed a confidential invoice discounting facility to one that was publically stated on the company’s sales invoices.  There did not seem to be any real reason for this change.  The effect was significant on creditors’ willingness to extend credit to the company.
• The bank’s monitoring of the company’s credit control became intrusive – overriding the company’s credit control department. 

In all these measures I believe it is clear that the bank’s executives acted as shadow directors – and, as such, would be held liable to the creditors for the losses sustained by the company.  The dismissal of the Finance Director alone was an important change – resisted by the company’s board – but imposed by the simple statement “unless you agree to this we will pull the plug”.

The natural reaction of the board of Wye Valley was to find an alternative to RBS.  An offer was made by Lloyds Bank to provide similar financing to RBS.  A reference provided by RBS (a copy is available) led to Lloyd’s withdrawing their offer.  Why did RBS do this when they had a chance to rid themselves of a customer with whom they had issues? 

At the same time RBS were maintaining that they were pleased to negotiate a continuation of the current financing arrangements.  As part of these negotiations the Directors were persuaded to invest £350,000 – of which John Goddard invested £125,000.

Once the additional equity investment was received, the bank started increasingly to restrict the finance available under the invoice discounting facility.  The suppliers became more nervous and withdrew trade credit.

On Monday 7th December 2009 John Goddard informed RBSIF that he had appointed an Administrator to the company.  The next morning two RBS executives visited the company’s premises and illegally took away sales ledger documentation against the wishes of the company’s Directors.  The administrator, whose appointment was confirmed by the Court on 9th December forecast that there would be a surplus of £319,000 after satisfying the borrowings against the sales ledger – thus providing funds for the repayment of the bank overdraft.  The bank took charge of the sales ledger but did not account for their debt collection in detail to the Administrator who had, of course responsibility to all the creditors.  There was in fact nothing left after the bank’s “close-out” operation.  There was, however, £283,000 of uncollected debts of which no details were ever made available to the Administrator.

The actions of RBSIF in taking away sales ledger documentation is inexplicable.  Copies of all sales invoices had already been entered into the bank’s sales invoicing system.  Why would they need further copies?  One effect of this action was to deprive all other parties (Company Directors and the Administrator) of the information necessary to collect the Company’s debts.  RBSIF had total unfettered control of the Company’s main asset.

I have mentioned above that RBSIF had agreed with the Company’s Directors that they would be involved in collecting debts if an Administrator was appointed. In the event the Directors were prevented from becoming involved in the debt collection operation.  Why did this occur?  Again the effect was that RBSIF retained total control over the debt collection operation – and no information was shared.   

The bank’s attitude in all of this was that they owned the sales ledger debts and they would make all decisions in regard to them.  No regard was ever paid to the “equitable interest” that the creditors had in that portion of the debts in excess of that funded by the bank.

A sting in the tail 

As a result of the above, the bank overdraft provided by NatWest of £200,000 remains outstanding and the bank are claiming this money from John Goddard under a personal guarantee. I believe that NatWest should look to its fellow-subsidiary RBSIF for this money.

Case 2 – TWC Shop Fitters and Joiners Ltd.

In the course of my investigation I have logged and scheduled over 400 documents.  My comments are based entirely on my review of these documents.

Much of the company’s business in the previous year 2010, related to the fitting out of large stores for a major retailer.  To finance this business the company used a financial institution who factored the company’s sales ledger.

According to management accounts prepared by a firm of accountants the business made a trading profit of £441,000 on sales of £4,818,000 – a healthy 7.8% return on sales.  However this figure was before deduction of charges for factoring the company’s sales ledger of £303,000 and consultancy costs of £109,000 from the aforesaid for firm of accountants who had been employed at the insistence of the factoring company.  These special charges amounted to £412,000 – almost 8% of sales and reduced the profits £29,500.

Under the factoring agreement penalty charges were made if customers failed to pay within the defined time period.  The major customer’s holding company specifies that:-

(we)agree specific terms with each (supplier) and then pay in accordance with those terms.

In spite of this the major retail customer consistently failed to pay within the agreed time period.  Throughout 2010 until 22nd October the agreed terms of payment were 60days (2 months).  The balance sheets of the Company at 31st July and 31st August, 2010 both show debtors to be 90 days (3 months).  This suggests that, on average, there was around £400,000 that was overdue.  The direct result of this was that the Company suffered substantial factoring charges which formed part of the factoring expenses mentioned above.

In summary late payments by the major customer directly caused high factoring charges which resulted in the company suffering a cash flow crisis – in spite of the underlying profits being earned.

During the six months prior to Administration, executives of the factoring company had close day-to-day contact with the Company’s executives and controlled who and when suppliers were paid – including HMRC.  In this role they were acting as Shadow Directors.

Although the customer’s payment terms were changed on 22nd October to 14 days, there was no apparent change in the customer’s payment performance – it is possible that it worsened.

On 21st January 2011 the Factoring Company decided to appoint an Administrator.  In the days prior to this the staff of the Company had been desperately trying to persuade the major customer to pay substantial sums that had become due. The day after the appointment of the Administrator, substantial sums were paid by the major customer and the loans advanced by the factoring company were fully paid.  A former manager of the Company has said that a former employee of the Factoring Company had told him that the Factoring Company was aware that the customer would shortly be paying substantial sums.  The decision to appoint an Administrator had been taken with the view that a substantial payment would shortly be paid by the customer.  If these sums had been paid a few days earlier the decision to appoint an Administrator could well have been avoided.  There had been direct contact between the Factoring Company and the Major Customer in the three months prior to the Administration.

The Administration went forward.  I understand that the Factoring Company were fully paid for sums borrowed as well as their Termination Fee which was reported to be £288.000.

The total exceptional costs incurred by the Company as a result of all these events amounted to over £1.2 million as detailed above.

Many of these costs would seem to have been unnecessary if the major customer had adhered to its agreement and also its code of practice. 

Case 3 - NSB Ltd

Introduction

This company sold devices which informed pet owners as to the location of their pets.  The service was paid for by monthly direct debits to customers’ credit card accounts.  There was a concern of the bank that, if the service was defective customers could reclaim debits to their credit cards from the bank.  It should be noted that after 61,676 sales there had been just 18 charge backs.  In the report that has been prepared by the ex owner of NSB Ltd the name of the senior bank executive principally involved has been withheld for legal reasons.

Report by Andy Keates the ex owner of NSB Ltd.  It should be noted that Mr. Keates, who is a director of SBCB Ltd has composed this report himself and takes full personal responsibility for its contents.

NSB Ltd 13 year award winning business deliberately closed by RBS in 6 weeks 20/10/2007 - 30/11/2007

RBS Credit Risk Team Manager “a named Senior Bank Executive” attempts to improperly Terminate NSB in 2006 but is thwarted.

1. January 2006 - after 61,676 sales and just 18 chargebacks, RBS WorldPay wrote to NSB: “Thank you for the sales you have already passed through WorldPay – You are a valued Merchant! We hope your business continues to grow.

1. February 2006 - a new RBS Credit Risk Team manager “a named Senior Bank Executive”, performed an impossible risk assessment on NSB’s sales without communicating with NSB. NSB was then immediately served with a notice that NSB’s merchant account would be terminated in 30 days. RBS also stated it would retain 100% of NSB’s company revenue, from all NSB’s sales made during the termination period. This rendered NSB insolvent and bound to stop trading.
2. The reason given by RBS, was that NSB’s ‘Lifetime Pet ID Membership’ sales – i.e. 55,000 + of NSB’s 61,676 sales (costing £10 each or free with other goods/ services) had always caused RBS a ‘High chargeback risk’ which would last 10 years! RBS had just simply not mentioned it for 61,676 sales and had charged NSB to process each and every sale!
3. “a named Senior Bank Executive” later admitted in 2009, that RBS cannot determine a merchant’s sales risk, without communicating with the merchant! RBS had not communicated with NSB regarding its sales risk, since NSB’s risk assessment by WorldPay in October 2000 and the Merchant Agreement was agreed and signed by both parties on 06/11/2000.
4. “a named Senior Bank Executive” refused to explain his actions, so NSB was forced to threaten legal injunction. At this point “a named Senior Bank Executive” engaged KPMG.  On no basis whatsoever, KPMG falsely reported that NSB’s ‘Potential chargeback risk’ was £684,000. The required ‘real chargeback risk’ was not calculated. NSB was barred by RBS from viewing ‘chargeback risk rules’!
5. In reality NSB can now prove that NSB’s sales caused no ‘Potential’ or ‘Real’ ‘chargeback risk’ to RBS whatsoever.
6. April 06 - after the KPMG report, RBS bizarrely returned NSB’s retained monies and the termination was withdrawn. 
7. July 2006 - RBS WorldPay responded to NSB’s June complaint, stating that NSB’s chargeback risk was reducing. This was false. It was a cover up. There was no chargeback risk in the first place. NSB resolved to move banks.
8. January 2007 - Barclays assisted NSB’s business expansion plans with a £180,000 loan, conditional that NSB leave RBS WorldPay and move to Barclays Merchant Services.

“a named Senior Bank Executive” Terminates NSB again and

9. March 2007- “a senior bank executive’s Credit Risk Team wrote an entirely fictitious report on NSB for the (ICE) Intensive Care Exposure Committee (Credit Card Merchants equivalent of the RBS GRG). The report claimed that NSB was a failing company and that NSB’s ‘Potential’ and ‘Real’ risk of chargebacks had increased by £703,000 in just 10 months which was more than NSB’s entire company revenue in the same period! The report recommended Termination of NSB again. NSB knew nothing of the report. The entire report is provably false – ICE reports are charged with ‘ensuring accuracy’.
10. The ICE committee strongly questioned the RBS claim that NSB’s ‘Potential risk’ was identical to ‘Real risk’ both at £1.387M and required a recalculation.
11. May 2007- “a named Senior Bank Executive’s team recalculated NSB’s ‘real risk’, calculating that ‘real risk’ was 1% - 2% of Potential risk rounded up to £1.4M i.e. 1% = £14,000  ‘real risk’. RBS already had Directors Personal Guarantee’s for £150,000.
12. Richard Wilkins, a member of the ICE committee, clearly suspicious of the Credit Risk Team report, investigated and stated in the next report, that NSB’s sales were actually ‘chargeback risk free’ after 28 days. .
13. June 2007 - The (ICE) Intensive Care Exposure Committee reconvened and member Richard Wilkins was incredibly replaced by “a named Senior Bank Executive” who had a clear conflict of interest. NSB’s non risk sales and the 1%-2% Real risk were not even discussed. The minutes record that the risk from NSB’s sales was actually projected to increase to £1.448M!
14. NSB was unaware of what was going on within the RBS Credit Risk Team and was in the process of selling the business to Graham Dacre CBE with an asking price of £3.5M. 16/08/07 - NSB received an offer from Mr Dacre for £2.5M.
15. July 2007- NSB informed RBS WorldPay, that NSB was moving to Barclays and Barclays Merchant Services.
16. 2/8/07 - the (ICE) Intensive Care Exposure Committee reconvened, now with “a named Senior Bank Executive” as Chairman! NSB’s stated move to Barclays Merchant Services was discussed and the minutes note: The chair [“a named Senior Bank Executive”] said that, within 14 days, RBS should obtain NSB's written instructions to close the merchant facility within a clear timeframe. If this is not forthcoming, then termination of the facility is to be considered.
17. RBS did not ask NSB to provide a timeframe to move to Barclays Merchant Services and instead on 28/08/07 sent an email to NSB stating: NSB’s facilities and financial profile were subject to an internal review. We regret to inform you this is formal notice of withdrawing facilities. 30 days notice of closure of account by 29/09/07.
1. Additionally we would welcome the opportunity to provide you with a quotation for our Payment Processing Only solution - to use with your new acquirer.
18. Clearly the RBS WorldPay notice was a reaction to NSB stating it was about to move to Barclays.
19. It was clear that the letter came from RBS Credit Risk Team, as WorldPay was offering to continue working with NSB!
20. VISA and Mastercard rules required Barclays to understand why NSB had been terminated. NSB asked for an explanation which was promised by RBS WorldPay manager Jason Webb.
21. 11/09/07 - (ICE) Intensive Care Exposure Committee meeting “a named Senior Bank Executive” was again Chairman, in breach of committee rules, deliberating over his own reports. The committee agreed that NSB should receive a full Termination explanation to be written by DLA Piper (RBS Lawyers). The RBS Credit Risk Team report of 05/09/07 having pointed out ‘This is not a complaint at this stage.’ Clearly RBS was concerned about its Termination action against NSB!
22. 29/09/07 - the date of NSB’s termination passed with NSB forced to ask for and receiving an extension to 20/10/07. Still no termination explanation arrived and the 20/10/07 date loomed large. Extension applied for on 12/10/07.
23. 16/10/07 - RBS WorldPay sent an email to NSB stating: Trading extension granted for a further 30 days to the 19/11/07 with full sales remittances until the 20/10/07 (for 4 days). However after 20/10/07, if NSB had not moved to Barclays, the revenue from additional sales made by NSB during Termination period, would be retained by RBS (for 10 years)!
24. (In 2011, NSB Director Andy Keats covertly recorded a conversation between him and the former RBS WorldPay manager Jason Webb. Excerpt  JW, reporting what he had been told on 16/10/07 by RBS “a named Senior Bank Executive”:
1. “Right, this is the last extension we’re giving, and to make sure, because things are rolling on, we’re going to hold funds because you [NSB] ain’t going to be able to run your business without funds so it was in your interest, to get things moving as quick as possible to get the money and move on.”)
25. There was no explanation at the time from RBS as to why it was retaining NSB’s sales revenue. Over the following 6 weeks, NSB and its lawyers wrote to RBS / WorldPay and its solicitors with 102 documented questions pointing out that NSB was being starved of its entire company revenue, was insolvent and would soon fail. RBS ignored everything.
26. NB: RBS had calculated that NSB’s ‘real risk of chargebacks’ was less than circa £14K and that was £14K too much!
27. November 2007 -insolvency practitioners told NSB that without revenue remitted by RBS, it was illegal for NSB to trade.
28. To assist matters, Barclays offered to allow NSB to transfer, but in the absence of an explanation from RBS, on unaffordable terms. RBS was informed and therefore asked to return NSB’s revenue that was being withheld on a sale by sale basis without explanation - (by then £74,000 and increasing by £3.5k per day) RBS simply ignored the request.
29. November 2007 - RBS was told that NSB’s solicitor that NSB was insolvent and about to close and that NSB would make a damages claim against RBS WorldPay, if RBS’s unexplained and unwarranted actions forced NSB’s closure to occur.
30. 28/11/07 - RBS WorldPay’s MD Ron Kalifa wrote to NSB claiming that the NSB revenue had been retained because NSB had been selling Lifetime Memberships, in breach of an agreement not to. The May 2007 RBS internal (ICE) Intensive Care Exposure Committee reports prove that was not the case, but NSB’s protestations were ignored by RBS.
31. 29/11/07 - RBS lawyers wrote to NSB lawyer, with a blackmail letter. RBS stated it would release £27,000 of NSB’s retained sales revenue, to pay NSB’s staff wages up to 23/11/07 but only on 3 conditions:
1. NSB agreed that the RBS WorldPay credit card processing facility was switched off the following day at 4pm. (forcing NSB into what RBS later said was termination by agreement!)
2. NSB agreed that RBS could use the retained NSB revenue to cover RBS legal costs in dealing with NSB’s complaints. (Not allowed within the merchant agreement)
3. NSB sign a written agreement not to pursue the bank with any claims against it. (Blackmail)
32. NSB agreed to 1 and 2 only. NSB was bust and having now just terminated its contracts, was forced to close anyway.
33. 30-11-07 - RBS for an unknown reason, released £27,000 anyway and NSB paid its 30 staff, making them all redundant and with many tears, closed the NSB offices and business after 13 years of successful award winning trading!
34. 10/12/07 – just 10 days later, RBS lawyers wrote to NSB’s solicitor claiming the following: ‘It was expressly agreed that should your client require the facility beyond 20 October 2007 our client would retain funds generated pursuant to card transactions.’
1. Of course no such express agreement existed! No company would or could agree to such a nonsense.

After NSB’s closure:

RBS refused to answer NSB’s complaints and forced NSB to pursue RBS for damages via litigation. It was a ridiculous farce, orchestrated by RBS. The RBS Credit Risk Team Manager “a named Senior Bank Executive” wrote 3 x court statements which he signed as true. These statements contain what we can now prove to be, circa 232 false statements and zero true statements that would assist RBS to defend NSB’s claims.

It took 5 years, until 2012 for “a named Senior Bank Executive” to disclose the internal RBS Credit Risk Team (ICE) Intensive Care Exposure Committee reports and minutes.  These emphatically prove the case against RBS and that “a named Senior Bank Executive” was lying throughout his statements.

Unfortunately by 2012 NSB had no money when litigation reached the Commercial High Court. RBS was requiring more than £80,000 cash per day from NSB, as security for RBS costs. NSB’s costs were circa £8,000 per day. NSB’s ATE (After The Event insurer) had suddenly pulled out without explanation, just after RBS had disclosed the proof NSB needed

Case 4 - Brantwood School

The easiest way to describe the sequence of events that led to the Administration of Brantwood School is to reprint an article A. that was published in the Sheffield Star – the local Sheffield daily newspaper.

The report mentions two valuations of Brantwood – a month part.  In two emails set out B. below Steve Wilkinson who is a Quantity Survey provides a critique of the two valuations.  He points out that the Bank relied upon a flawed valuation of £550,000 by their own appointed surveyors rather than a formal valuation by outside surveyors completed only one month before that showed the School’s Land and Buildings to be £1,050,000.

A.  Sheffield school undervalued before forced closure

29 March
2010
09:43

Published 26/03/2010 09:12

A PRIVATE school in Sheffield is up for sale at a recommended asking price of £1 million - after the bank which forced its closure insisted it was worth no more than £600,000.

Brantwood School for Girls in Nether Edge was controversially forced to close with only a week's notice in February after the Royal Bank of Scotland pulled the plug on its funding.

The school was struggling due to the recession and had loans with RBS secured against the school and its grounds - which governors had independently valued at 1 million.

But RBS withdrew support on the basis of an informal new valuation of around 600,000 - thought to have been based on a belief the buildings would be less valuable if they had to be converted for alternative use.

As a result 130 pupils and their families were given just a fortnight to find alternative schools - including girls sitting GCSEs in June.

Receivers Grant Thornton have now asked estate agents Eadon Lockwood and Riddle to put the school on the market for 1 million.

The move has angered parents and staff at the former school, one of whom described it as 'scandalous'.

They say if had they known the school would raise 1million it could have been kept open for longer - giving interested parties the time to put a rescue plan together and possibly save Brantwood.

It also calls into question RBS's decision to value the property at just 600,000.

RBS says the decision has been made by the receivers who are in control of the sale of the property, which includes the school building, a coach house and almost an acre of land.

ELR director Nick Riddle said he had received three inquiries within the first 24 hours.

"We valued the property at between 850,000 and 900,000 but even at the higher price there is a lot of interest," he said.

"We had nothing to do with the bank's 600,000 valuation - and if the new estimate is correct then the school had up to 400,000 in assets more than the bank said."

Brantwood's former chair of governors John Boyington said the school had never had any convincing response from RBS as to where the 600,000 valuation came from.

"It seemed to be an informal estate agent's opinion which came out of the blue, whereas ours was legally guaranteed," he said.

"It seemed to us as if RBS's actions were designed to essentially avoid even a single pound of risk. Their actions were unconscionable - and they have fundamentally undermined confidence in independent schools."

Mum Maxine Boot, whose daughter Eleanor is now preparing for GCSEs at Sheffield High School, said if RBS had agreed with the 1 million valuation Brantwood could have at least have been kept open until the summer.

"The pressure my daughter is facing from her imminent exams has been compounded by the added stress of having to move schools. The whole situation could have been avoided," she added.

Former Brantwood teacher Ian McNeilly said the bank's valuation had been absolutely scandalous.

"Anyone with even half an idea about property values in Sheffield knows 1 million is an absolutely bare minimum, even in these harsh economic times.

"There was no risk attached at all - and the depth of feeling shown by the parents proved that given time they could have come up with a rescue plan."

B.  Emails from Steve Wilkinson

Email 1

We have an actual example of a sham valuation being undertaken for West Register 8 days before the school was ordered to close. 

To put this in context an RICS surveyor's valuation should not vary by any more than 10% from an identical surveyor given identical instructions. The 10% rule is a benchmark to ensure reliability, this is what they train and study to achieve.

The Knight Frank valuation of £500K to £600K varies by 20% in itself which is unheard of, BUT the Sanderson Weatherall (RED BOOK) was £1.05M one month earlier. Coincidentally the bank debt was £600K. 

This example highlights perfectly that the valuation matches the bank debt this then effectively 'locks out' the EQUITY from any creditors. Section 423 of the Insolvency Act 1986 is de frauding creditors.

If ever there was a perfect example of their M.O this is it.

There is no way that a firm of chartered surveyors (Sanderson Weatherall) could OVERVALUE a property by 100%…..impossible.

I have reported this to South Yorkshire Police Economic Crimes Unit this morning (184/10.3.14).

Email 2

Andy

I have texted you since. It gets better. 

The RBS M.O is simple.

Brantwood property provides the banks security £1.05M against £600K loan. There was a 2007 valuation for in excess of £1M.

Brantwood is struggling having recently refurbished just ahead of the financial crash created by the banks. A lot of businesses were struggling at this time and RBS caused a good chunk of it themselves so EXTRA care should be provided………

Brantwood is targeted by GRG for 'support'.

Brantwood pay for a Red Book  valuation so that RBS can pass it to GRG/West Register (29th December 2009).

GRG know LTV is 60/40 and need to breach this BUT also take out all the creditors. THIS IS WHERE WEST REGISTER 'LOCKS OUT' the creditors. By valuing at £550K Brantwood is in breach and the loan is called in……enter Grant Thornton.

Knight Frank provide the 'respectability' with a sham valuation (27th January 2010). And more importantly the 'trigger' is pulled using the valuation.

Brantwood have to be shut quickly in order for RBS to benefit from the cash-flow of the new school terms fees (4th February 2010). This serves to highlight the GRG M.O. Due to the rapid way it closed in on the KILL.

The resultant press coverage is quite shocking BUT the majority of the population (95%) have no sympathy for FEE paying schools, parents, pupils, staff and governors (RBS know this). The story quickly fades away.

HOWEVER……..in the immediate aftermath RBS have had sufficient flack such that they need to make a statement.

It said: "We have provided them with the maximum credit facility we could offer, which is 100% of the value of the property. To extend further would be to ask RBS stakeholders to pay the price for the failure of the school"

The above statement is using the Knight Frank figure of £500 to £600K and comparing it the loan (£600K). This statement is KEY.

Question? 

Since when has RBS ever lent 100% on a loan to value over a long period (years)?

They had the valuation on 27th January 2010 and ordered the school to be closed on 4th February 2010. How supportive is that?

                         8 Days of RBS support.

The Brantwood case is the precedent.

It is the wooden stake and their statement is the nail gun loaded and firing in the stainless (Sheffield) steel coffin nails.

We are arranging for 3 retrospective 'desktop' valuations to be carried out by RICS surveyors to the same format as the Knight Frank version. In a perverse way, given the caveated nature of the Knight Frank valuation (can't be sued) you would expect the valuation to be HIGHER than the Sanderson Weatherall one. The Sanderson Weatherall one actually states that they expect the value to increase once residential planning permission is granted.

June 2014