Guest column: Alison Loveday – on GRG and an end to ‘defending the indefensible’

Alison Loveday, chief executive of law firm berg, comments on the latest GRG developments and calls for an end to ‘defending the indefensible’.

BERG has built up extensive knowledge of GRG’s activities, the approach of its staff and the horrendous impact this has had on business owners and the UK economy.  

This typically meant long-standing, generally profitable and/or valuable businesses, particularly those with property assets, have since been destroyed because of GRGs activities.  

Clearly there is a cycle of businesses succeeding and failing. It would be very wrong, however, to believe that all of the businesses that went into GRG were failing. On the contrary, it is the very act of transferring them into GRG that typically brought about their downfall.

In a typical scenario, the bank would claim that the business needed to move to another division which could offer a range of facilities, more suited to the business or the transfer to GRG would happen automatically. This resulted in the long-standing and trusted relationship with their relationship manager and other key personnel coming to an abrupt end.

The bank would proceed to increase its charges, interest rates, remove overdrafts and terminate loans – all with a view to maximising their return, at a significant cost to the business.

In some instances, the bank would engineer defaults – typically through the use of low valuations obtained from internal desktop valuations or from external “pet valuers”. Other covenants cited on breach might be the provision of documents or management information.

The bank might insist on an independent business review (IBR), which simply increased further the businesses’ costs, at a time when a business was  already under significant pressure.

Although the business owner believed the firm carrying out the IBR was acting in the best interests of the business, very often they were simply feeding information back to the bank and this could be a precursor to insolvency, and the appointment of a formal administrative receiver (often from the same firm that carried out the IBR).

In other cases, the bank would insist on the sale of assets, often at an undervalue, to reduce the loan to value exposure. In some, it insisted that its investment was such that it demanded not simply a financial return, but an equity stake. In those circumstances, business owners were forced to give up part of the business to the bank by way of a property participation agreement.

In others, the property was sold on to a third party (who might be a customer of the bank) or to its own separate division, West Register, clearly set up to take property from GRG.

Despite the fact that the GRG division was allegedly closed down in summer 2014, we know of businesses who are still in GRG. Whilst the regulator has agreed to investigate, business owners are still left waiting two years on.

Many business owners have been so devastated by GRGs activities that even if they have the re-sources to fight, they do not have the mental resilience to take that fight on, raising the serious question of ‘access to justice’ in relation to these banking disputes.

We are calling for full transparency as to the role that RBS, the Treasury, Government, the British Banking Association, Bank of England and the regulator have played. Furthermore, business owners must be properly compensated for the loss and damage they have suffered.

If the outcome of the regulator’s investigation (The FCA sec 166 Report) is to recommend a compensation scheme that will avoid the need for litigation, that would be very welcome.

It will still be necessary, however, for business owners to properly understand the nature of their claim and how it can best be presented to ensure that any compensation paid is a true reflection of the losses suffered.

We are very clear from our experience that the banks are controlling information in an unfair manner – either by settling claims and imposing “gagging orders”, pressurising employees not to “whistleblow” and failing to provide full disclosure as part of the litigation process itself.

We would question the stance that RBS has adopted to date. If it truly wishes to repair the damage caused, and become the most trusted bank (which is its stated aim), it must stop ‘defending the indefensible’ and provide a clear account of exactly what was going on in the bank.