Hundreds of small businesses that were mis-sold interest rate “swaps” and forced into administration by their banks may be denied compensation.

Instead, the banks that carried out the mis-selling may end up compensating themselves as the new owners of the businesses.

The extraordinary situation has been branded a “huge injustice” by affected businesses, which claim that the banks have cut them out of the compensation process by forcing them into administration.

A group including Bully Banks, which represents businesses fighting for swap compensation, will lobby senior civil servants in the Department for Business, Innovation & Skills and the Financial Conduct Authority at a meeting on Wednesday. They will demand that banks are forced to allow the former business owners back into the compensation process, so that if they are due a payout, they receive it.

Abhishek Sachdev, of the consultancy Vedanta Hedging, said: “The administrator may be pressured to go through the compensation process because they have a duty to all creditors. So for every £100 of compensation, the bank may get £60 and other creditors £40 depending on the size of creditor claims.”

In an agreement struck with the regulator in June last year, Barclays, HSBC, Lloyds and Royal Bank of Scotland admitted to mis-selling interest rate swaps and promised to review all cases and to compensate victims. The banks said they would not put any more businesses with mis-selling claims into administration until their cases had been resolved, apart from under exceptional circumstances.

However, The Times has spoken to the owners of several businesses put into administration before that date who believe they have a swap mis-selling claim. They are frustrated because the FCA review and also private litigation have been closed off from them because the running of the company is now in the hands of insolvency agents.

The former business owners are angry because they believe that the insolvency agents may be unwilling to pursue claims against the banks.

Robert Abson, a former HBOS client whose hotels business was put into administration in November 2011, said: “There is a conflict of interest. The bank is paying the administrator, so why would the administrator pursue a mis-selling claim against the bank?”

In fact, the administrators may have no choice but to pursue mis-selling claims because there will be other creditors, including HM Revenue & Customs. This will lead to the bank compensating itself and others.

Several sources said that banks were not necessarily to blame for the situation because, under insolvency law, any payouts go to creditors, so would reach the former owners only if they fell into this category.

Banks have also said that the swaps were taken out by the businesses, not their former directors. So it is appropriate that any compensation goes to the company, or its new owners, they say.

The former directors argue that they are due the compensation as in many cases they owned all or most of the businesses’ equity.

Swaps were meant to protect businesses against interest rate rises. But as rates have stayed close to zero in the past few years, many businesses have had to make huge payments to the banks. Analysts believe banks may have to pay out £20 billion in compensation.