Vedanta Hedging hosted and chaired a meeting (at their London office) to assist SMEs that have gone into Administration with the the FCA Review process for mis-sold interest rate swaps.
In attendance, were senior representatives from the Financial Conduct Authority (FCA), Her Majesty’s Treasury, the Government Insolvency Department, the Department of Business, Innovation & Skills, Bully Banks, leading Insolvency Practioners and Solicitors.
The detailed discussions remain confidential, but all of the participants felt the meeting was positive and some tangible outcomes were reached.
Administrators of businesses that have gone bankrupt are to be told by the Government that they must help to bring mis-selling claims over interest rate swaps against their banks.
They should keep the former owners of businesses informed about their work and share information they receive from the banks, the Insolvency Service is likely to say.
Normally, former directors and shareholders do not receive any information about their businesses once they are in administration.
The Insolvency Service, part of the Department for Business, Innovation & Skills, is preparing to issue the guidance in response to what has been described as a “huge injustice”. Hundreds of small businesses that were mis-sold interest rate swaps and were forced into administration by their banks may be denied compensation by insolvency law. Instead, the banks that carried out the mis-selling may end up compensating themselves as the new owners of the businesses. Senior figures from the department, the Treasury and the Financial Conduct Authority met Bully-Banks, which represents businesses fighting for swap compensation, last week to discuss the issue. The Insolvency Service said it was considering issuing guidance to administrators.
Abhishek Sachdev, who hosted the meeting and runs the consultancy Vedanta Hedging, said it was “encouraging” that senior people from several government departments and the regulator were focusing on the issue.
One idea put forward at the meeting was for banks in their role as new owners voluntarily to give up any right to compensation. The British Bankers’ Association did not comment.
Small businesses voiced worries about whether administrators would bring legal action against the banks to pursue mis-selling claims. Many believe administrators will be reluctant as the banks are paying their fees and are large clients in general.
Jon Welsby, whose property business was put into administration by Lloyds in 2011, said he was concerned about the appetite of administrators to sue, particularly as they would be on the hook for the legal costs.
Swaps were meant to protect businesses against rate rises, but, as rates have stayed close to zero, businesses have had to make huge payments to banks. Businesses complained that the products and risks were too complex.
£20bn Analysts’ estimate of banks’ total compensation bill
£2bn Amount set aside by banks so far to pay claims
90% Mis-selling rate among a sample of customers reviewed by the Financial Services Authority
Sources: Financial Conduct Authority; Times research