Private equity owner warns against merchant bank powers

Credit: Lloyd Fraser

Barbican Capital has called for regulators and the government to look closely at the powers of the merchant banking sector, following the administration of one of the UK’s largest milk hauliers.

The private equity owner of Lloyd Fraser had given notice of legal action to Close Brothers, the business’ bank at the time, following losses incurred from the bank’s IT system, IDEAL.

Barbican alleges that Close Brothers then appointed administrators from Kroll to the business, whilst Lloyd Fraser was in the process of switching banks. More than 444 staff were made redundant with immediate effect.

A Close Brothers spokesperson however has told “Close Brothers is unable to comment on what is a live situation, other than to state that it strongly disputes Barbican Capital’s characterisation of the events in question.”

It’s caused concern for the future of milk supply in the UK as well as having an impact on the fashion industry, as Lloyd Fraser delivers milk to the likes of Arla and Muller and fashion retailer H&M.

Anthony Finlayson-Green, Chief Executive of Barbican Capital, said: “The FCA and the government need to look closely at how merchant banks are behaving. In the blink of an eye hundreds of employees and their families are facing a torrid time. The dairy sector is thrown into chaos and a solvent company, Lloyd Fraser, which was simply seeking to recover its losses from the bank is out of business.

“We are taking legal action in this instance, but there’s a bigger threat here for UK businesses up and down the country who will be at the mercy of powerful merchant banks who will try and get away with shutting down businesses who question their services. Had this been a high street bank, they would not have got away with it.”

Barbican says it had requested of Close Brothers’ Chief Executive, Adrian Sainsbury, that an internal investigation be carried out after the business discovered the bank’s customer IT system had led to financial losses for the company.

Sainsbury is alleged to have confirmed that an internal investigation would take place, but no further communication was received until news of administrators being appointed emerged.