Carillion – OMG, what a mess

The FT has written about why Carillion has gone into Compulsory Liquidation today rather than Administration.  But their article is just a good guess because at the moment we do not really know.  There could many reasons why, but whatever the reason is, it shows that we need yet another insolvency procedure because a kind of Administration would be a better solution.  Carillion needed a “breathing space” and some super-priority funding a la Chapter 11 in the US.  If Administration is like a gliding crash landing, Compulsory Liquidation is like slamming into a mountain side.

The Insolvency Service cannot possibly manage this kind of case, so they have brought in PWC to act as Special Managers.  I did one of these some 15 years ago and the OR in Birmingham said he had never done one and that they were “as common as hen’s teeth” (Note for under 30s: hens, or chickens do not have teeth).    Even with all of PWC’s might, this is a big case so the costs are going to be astronomical – i.e. tens of millions of pounds if not hundreds of millions.   How many construction sites? How many offices, hospitals, prisons, schools are being repaired? How many depots of equipment and how many Carillion vans are there?  This is bad, really bad.

So, what should Subcontractors do?  Essentially they should definitely stop work and use this as bargaining power to extract as much of their arrears as they can and/or up their prices for future work.  And get it in writing as government announcements on the BBC are not worth anything.  The Insolvency Service is already being a bit “economical” with what it says by saying “employees should turn up as normal as the government will ensure they get paid”.  This has nothing to do with subcontractors and even for employees is “thin”.

Employees – oh boy!, this really is going to cause problems.  Carillion has gone into Compulsory Liquidation which is not the same as receivership, creditors voluntary liquidation nor Administration and the differences are really important, particularly to employees.   Employment contracts are automatically terminated on the making of a winding-up order.  So technically speaking, Carillion does not have any employees since they were all terminated at 7am this morning.  So what does this mean when the Insolvency Service says they will all be paid for today and this week?  Well, if this were the private sector the organisation that just “took over” the responsibility for the employees would, under TUPE, just have taken on all the employees.  So does the Insolvency Service realise it now has another 20,000 employees?  Goodness knows.

This case is mind-boggling and the way it has been allowed to crash is an indictment on how we manage our economy.  Let’s see who they blame first because it might not be the directors.  The Cabinet office and other ministries have been meddling around in the background as if they are suddenly “turnaround professionals” and, of course, the Banks are also there too.

More in due course…


GRG Section 166 Report, Interim Summary – some comments by James Nicholls

Some matters arising from the Interim Summary of “A report on an independent review of Royal Bank of Scotland Group’s treatment of small and medium-sized enterprise customers referred to the Global Restructuring Group” published in October 2017


By James Nicholls, solicitor, Partner at Gunnercooke llp


Summary of my comments


I go into detail below of how the language used throughout the report is inappropriately “pro-bank” and how misleading this is.


I expand on the mealy mouthed and mild criticisms that are implicit and show how the consequences of the conduct can devastate lives.


I point out how Mazars cannot be considered “independent” because their insolvency and restructuring partners are part of, and beneficiaries of, the culture that colluded with the modus operandi of GRG.


I show how the systematic and systemic failings cannot be put down to GRG alone and senior management and the Board of RBS must have known  what was happening in GRG and decided not only to ignore it but also to benefit from it.


I point out how when all the practices gently criticised in this report are put together they add up a toxic environment for SMEs such that RBS (and it ought to be noted, other banks) was able to plunder these businesses for its own benefit.


I should apologise as there is a degree of repetition but this is because these notes follow the format of this Interim Summary itself which also repeats itself.



In conclusion, when this report is read “between the lines” and the consequences of the failings are considered it is clear that it contains a watered down but still damning indictment on RBS.


Since RBS, though, was not the only bank undertaking these kinds of practices, since I know them to be endemic in the banking and insolvency sectors, it is clear that the banks and professions of accountancy, law and valuation cannot be trusted to appropriately manage the finance industry.  Too much power and discretion was placed in their hands mixed with enormous and unresolved conflicts of interest and lack of transparency and oversight such that it was inevitable that fraud and wrongdoing would become rife.


The Enterprise Act 2002 almost managed to introduce the concept of “debtor in possession” meaning that owners/managers of businesses would have been left with some power to resist that of the banks, however, the banking industry was able to, at the last minute, convince parliament that owners could not be trusted and that only banks and regulated professionals could be – to protect creditors. This report reveals what a travesty of misinformation that was and what a tragedy to thousands of people was then created.


The banking and finance industries should now be under much firmer regulation even though they will squeal that lending will collapse. The legal, accountancy and insolvency professionals have foregone their role of being the protectors of society’s creditors without much more supervision.


We need a banking act to introduce wide-ranging changes and a re-balancing of the bargaining power of lenders and borrowers and an Insolvency Act that leaves owners and managers of businesses with significant enhanced powers and protections from rapacious lenders.


The participants in the regulatory and legislative changes recommended above MUST come from the victims as a group and their advisers, yes like me, and not only from the firms of accountants, lawyers and valuers who have benefitted from years of colluding with banks, nor the regulatory bodies of those professionals such as R3 (not a regulatory body but an industry body), IPA  ICAEW, RICs etc.  One must also question whether the FCA is capable of managing such changes because of the “revolving door” between that regulator and the banking and accountancy industries.  The Insolvency Service that has been embarrassingly quiet relating to this particular banking scandal as it has been gradually revealed since 2008 centred on its industry (including many professionals regulated by it).


A Royal Commission is probably what is need and a second “Cork Report” produced by someone who can be trusted.




To call this Interim Summary of the Report a “whitewash” would be misleading and in fact insulting to its authors because it is a much better effort at a cover-up than a whitewash.  It is cleverer than a whitewash because it does not give RBS a clean bill of health.  But what it does do is absorb all the indignation and anger and then channel it into a kind of milieu of minor mild rebuke.


At the same time, although pretending to be a robust “shot across the bows” of RBS, all the language used is as kind to RBS as it can possibly be.  The criticisms of RBS use words like “inappropriate”, “unrealistic”, “undue… focus” and “inadequate”.   All this use of “kid gloves wording” means the underlying message is one of “very little to see here”, “no one’s really to blame” and “improvements should and have been made”.


With a different tone with a bit of actual incredulity and condemnation, this report could be used as an actual reason to reform banking.  And if you read between the lines and know anything about the insolvency industry, you will realise that even this Interim Summary contains a catalogue of appalling, immoral, probably criminal and downright disgraceful practices of a thoroughly disreputable organisation.


The other major criticism of the report is that it does not link all of the practices it criticises so as to point out that in aggregate the effects of the practices were unethical, immoral and disgraceful.  The combined effects were devastating for the SMEs and the families that owned them.  Real people with real lives, with children and mortgages to pay and Christmas presents to buy had their lives torn apart by these practices and their consequences.


It is particularly important to remember that RBS, incredibly, was able to help define the terms of reference of the investigation.  The methods and procedures and abuses in GRG did not start in 2008 and neither were they a reaction to the financial crisis.  In fact, GRG (and its forerunner SLS) had been using these methods for at least ten years.  I know this because I was on secondment to SLS in 1998 and West Register was being used to ‘park” property assets and we were drafting Property Participation Agreements and other “Upside Instruments” even then.  Being a member of the “awkward squad”, even in 1998/99 when I was on secondment at RBS SLS as a very junior lawyer, I gently questioned SLS employees about obvious conflicts of interest and arbitrary charges.  Everyone knew there were “issues” but it was the early days of the development of abuses so everyone just shrugged.


Another criticism is that the gentleness and un-condemning nature of the  words and phrases hide the facts and misery behind the implications of those words. It feels like reading a report into a genocide where we know what the report is about but it does not mention anywhere death, mutilation or people.  Each issue of “inappropriate” conduct or “less emphasis” hides some appalling story where a family is wrecked.


So when it says something like “a failure to ensure that appropriate and robust valuations were made” or “inadequate controls over pricing practices”, which are inappropriately mealy mouthed, I think it should provide a specific example of what the consequences were when this happened.   So, for the former, an example would be where a valuation GRG obtained (often internally from their own secondee valuers) would undervalue a property such that RBS foreclosed and that ruined some family’s life as they lost everything.   For the latter “inadequate controls over pricing practices” means that some business was charged enormous fees and interest so that other creditors were not paid (like HMRC) and this caused the company to collapse which again ruined a family business and meant kids went without Christmas presents, marriages collapsed etc. And led to the collapse of other businesses in a “domino effect”.


Without examples, the report is cleansed of any consequences and it is unjust that this is the case.  MPs and those interested in these matters need to understand the consequences of the GRG “inappropriate treatments”.


Thirdly, the use of the word “widespread” appears a great deal.  It appears in two contexts, the first being where something was “widespread” and second where something was “not widespread”.  There is a problem with this term.   Somethings are so bad that to dismiss them as “not widespread” is not good enough.

If I say to you “I have hardly killed anyone, particularly since 2008” are you reassured or perhaps terrified?  When something is “not widespread” we need to know what this means.  How many instances of very bad things were found? Also, some “found” instances will be because RBS has not been diligent enough to cover them up but with a little bit more digging it might be revealed that abuses were more than “not widespread”.   Remember that this report is based on a sample of cases the choice of which was influenced by RBS.   The worst excesses of RBS might well have occurred in the twelve months or five years before 2008.   The first inklings of the financial crisis were felt well before 2008 so maybe there are cases in 2007 in which there was much more “widespread” abuse.


The whole report is one where everyone involved, including the FCA is bending over backwards to give the benefit of the doubt to RBS and GRG.  If there is anything “on the fence” then the attitude is to fall in favour of RBS.   As an example, the interim summary at 2.52(f) states:


The absence of adequate records of the rationale for the decisions rendered it difficult, and often impossible, for the review to consider how a decision on price had been arrived at”.


The whole tone of this sentence shows the reviewers were trying to find a “rationale” for ruinous charges.  So we can assume then, that whenever it was possible to “just about” find some “rationale”, no matter how dysfunctional or inadequate, then the reviewers would not have highlighted those cases as problematic.


Sadly, those of us who know and understand the Insolvency Industry, will know and understand precisely what this is really about.  There was very often no “rationale” to any pricing decision. The fees and charges that were applied to a case would often have been based on the following 4 criteria:

  1. What cash the business generated i.e. what the case could bare;
  2. The particularly Relationship Manager’s budget requirements;
  • What was ‘just about’ not too embarrassingly outrageous to get away with;
  1. The believability of the poor customer as he or she tried to object.

None of these criteria should have been relevant at all but when you give powers and discretions to your staff, incentivise them to misuse those powers and discretions, surround them in secrecy, ridicule and undermine any objectors and denude them of any power (i.e. money to fight) you are bound to get run-away abuse.


Another issue of context is that RBS had notice of this investigation and was able to prepare for it for months.  It is the best possible report that could be produced.  RBS and GRG staff had time to annotate files, fill in missing information, discuss amongst themselves and create answers and reasons for decisions and generally carefully prepare the ground for the investigators to see.  That the report is still so damning must undermine RBS’s mixture of pleas of ignorance and mitigation.


How Ross McEwan can read this report – and he does know the consequences of and meanings of the findings – and still be brazen about it is quite incredible.  He states that RBS made mistakes and that they are putting them right.  GRG was not a mistake and list of appalling practices was not created by coincidence or accident.  GRG and West Register were hidden, profit making parts of a Bank where it is now obvious corruption, fraud and malpractice were endemic.  The modus operandi of GRG was to pillage customers when at their weakest and leave them with nothing and no ability to fight for redress.


The words of the report obscure what this report is about.  For this reason I am going to go through the report and add some comments to add some meaning and depth to many of the opaque, disingenuous and misleading paragraphs.


I hope some people read this who can make a difference to the future because many of these practices are still going on today and if there is no fundamental shift in the balance of power between commercial lenders and commercial borrowers we will see the banking and asset finance industries pillage our economy (or sectors as they experience dips) again and again and in this way we enable bankers to cream off the value of all the hard work from others.


So, what is wrong with this report?


Foreword by Andrew Bailey, Chief Executive, FCA


Probably the most appropriate response to the full S166 Report (which has not been published) would be for the FCA to say it was handing over the whole problem to the Serious Fraud Office and the Police because what went on in GRG looks pretty much like institutional fraud and theft to me.  The language of the report dresses it up but all the elements of crimes are there.  What is missing is a jury to decide what is bleeding obvious to everyone which is that RBS did know what was going on and was happy to let it all happen. Sadly we do not have a serious fraud investigation police force in the UK.


The first two and a bit pages of the report are Andrew Bailey’s apology to the banking industry.  He all but begs for forgiveness.  He says “Given the serious allegations I believe it was appropriate for the FCA to look at the treatment [of SME customers by GRG]”  which basically is “Sorry guys, but I gotta do this”.


He reminds the banks that their main defence remains that this area of banking is unregulated and of course this also lets the FCA off the hook.


He reminds us that the most serious allegation in the Tomlinson Report were not upheld and that this all happened at a time of “extreme financial stress” and he congratulates RBS for its public acknowledgement that it did not “always meet the internal standards that it set itself”


You might read Bailey’s final paragraph where he puts it all down to a lack of good complaints handling and that just a bit more ombudsman will solve all the issues and you might conclude he had not read the same report you are about to read.


His final paragraph is a bit of handwringing and that the FCA will help lawmakers in the future.


So where is the anger, the chastisement, the frustration, the sorrow or regret?  I seriously do not know how he can read the report and not feel intense disgust in his industry never mind that much of this happened “on his watch” whilst at the Bank of England.


Apart from actually giving his contact details and a list of his hobbies you could not have a more obvious Job Application to the Banking industry.   He signals “I am one of you. Sorry I have to do this. I have watered it down as much as I can”.




Right at the outset of the review somehow RBS was able to influence the terms of reference by limiting the sample period to the dates 1 january 2008 to 31 December 2013 and to only SMEs.  There does need to be a start and finish to the review period but in allowing the bank to insist on this short five-year window, the FCA was hoodwinked.  1 January 2008 was not the start of anything (other than 2008) and clearly was just chosen as a neat starting date.   The financial crisis did not start in 2008 and nor did the problems of hundreds of businesses that went into GRG during the early stages of it.

By using this date as some kind of “gate” and taking all the issues created by the financial crisis as “givens”, the FCA allowed RBS to use the cover of the financial crisis to show that almost ALL of the businesses transferring to GRG were already in financial difficulties.


A number of important points then occur:


  • How did RBS influence the FCA to get this as the starting date and limiting the investigation to SMEs?


  • RBS did not, in any way, pass on the forbearance or the bailout it had received to its own customers. Either the Government missed the opportunity to pass on the “rescue” or it tacitly (or maybe evenly explicitly) gave RBS permission to go and pillage all the businesses affected by the downturn.


  • RBS, one of the World’s biggest banks, and all the other banks in the World largely caused the financial crisis by their recklessness in the preceding decade. In wrecking the world’s economies, they caused the crash of property prices the result of which was to create the covenant defaults which enabled them to take the businesses into GRG.


  • In 2007 and 2008 there was probably not a “balance sheet solvent” company in Great Britain and so accordingly RBS and GRG were probably able to pick and choose who they decided would be taken into GRG and thence onto West Register without it looking the least bit suspicious. What needs to be looked at is not only which defaulting companies did get transferred into GRG but also which did not.  Only by looking at both sets can the FCA really be assured that GRG and WR did not “cherry pick” their property portfolio.


The other factor being largely ignored is that Swaps and Interest Rate Hedging Products, pressed onto RBS customers were the causes of financial difficulties of many of these SMEs.  Accordingly, for this report to essentially say that almost all the SMEs in the sample were already or very likely to go bust is also unfair.


It could be, and can be shown, that RBS causes many businesses to get into financial difficulties and then, using all the abuses that are outlined in the report, it took advantage of its strong contractual position to sweep away all the value in the business.


The other interesting point is that the review was limited to SMEs.  Again, this allows GRG’s treatment of large and very large businesses to remain unexamined.   From my experience there is likely to have been just as much abuse of the defaults by large customers as there was of SMEs.  By excluding all these files from the eyes of the investigators, they allowed RBS to focus on preparing their files on the SMEs only.  It has also to be added that because the assets held by SMEs are usually quite small and the figures involved also quite small it is easier for abuses to appear within the realms of normality.


Scale and conduct of the Independent Review


These paragraphs briefly describe how the review was undertaken but many questions and issues arise.


  1. Were any secondees interviewed? GRG was “staffed” by many secondees from all the large firms of solicitors, accountants and valuers.


  1. The sample size of 207 (or 178) seems quite small? How many businesses went into GRG in 2007 which was the start of the financial crisis and, by definition, were excluded from the review?


  1. What proportion of all the cases that entered GRG were the 178?


  1. How many larger businesses went into GRG during this period?


  1. How was the sample arrived at? What notice was given to RBS and GRG about this sample?


  1. Were any insolvency practitioners interviewed? If not, why not?


  1. Were GRG staff briefed on how to conduct themselves during interviews?


  1. Were GRG staff interviewed in the presence of an RBS instructed solicitor or their own solicitor?


  1. Was anonymity given to GRG staff in the interviews? Were any ex-staff interviewed?


Review outcome


One cannot read the Review Outcome (also published in November 2016 in summary) without wondering what report they are referring to.


How can it be said in November 2016  “while some isolated examples of poor practice were identified” and then in October 2017 say they “found that there had been widespread inappropriate treatment of SME customers by RBS…”?


Referring to the bullet points on page 6, specifically:-


  1. What does “artificially” mean in this sentence? What should be asked is – What part did RBS or any of its products or facilities play in causing or facilitating the move into GRG?


  1. Every business in 2008 was “exhibiting clear signs of financial difficulty” caused either by the general collapse in property prices caused by amongst others RBS or from being mis-sold (i.e. fraudulently sold or forced upon) an interest rate hedging product.


  1. “not a widespread practice” of “inappropriate reasons” for transfer to GRG, but here was some then? How much? How much of this abuse is OK?
  2. “not a widespread practice” practices of requesting personal guarantees etc , again, but there was some? How much? How much of this abuse is OK?


  1. Ditto for “unnecessarily burdensome requests for information”?


  1. Ditto for Shadow Directorships? What has happened to these companies?  Anyone been disqualified as a director?  What admittance has been made?


Many of the other points are addressed further on in this note because the report itself addresses them in a little more detail.


In this section it is considered that inappropriate treatment was “systematic” which was a conclusion roundly rejected in the report created by Clifford Chance in response to The Tomlinson Report.


It is a shame that there is no discussion about what is meant by “systematic” in contrast to ,say, “systemic” or even “endemic”.    The conflicts of interest that are mentioned in the report and the lack of control and transparency in the dealings of SLS and latterly GRG were fairly obvious to me in 1998 and it was also obvious that quite a few people were concerned and occasional nervous about such things.   It does not surprise me at all that for many of the accusations against GRG there is no evidence.  In 1998 it was obvious care was required to avoid accusations of “shadow directorship” or abuse of position.  The staff in GRG were not stupid nor completely naïve. They would have known what it was not ideal to write down or put on the file.


Further down this section, towards the end, there are two comedy paragraphs obviously left in my mistake.   The first says that none of this is meant as any kind criticism of anyone involved in the management of GRG and the second states that none of the conclusions should be “understood” as criticisms by the FCA of GRG, RBS etc.


I simply do not understand these paragraphs. If a finding of “widespread” overcharging is not something to be criticised, well one wonders what the point of the whole thing is.  I think in reality it, again, illustrates how reluctant the FCA is to find fault with banks generally and RBS in this case in particular.   It also undermines the report knowing this.


Addressing harm caused to SME Customers


Paragraphs of appeasement and congratulation to RBS for generously stopping stealing from its customers and the mention of the scheme to refund some of the over-charging (i.e. fraudulently obtained proceeds) but only to, what it calls, “eligible” SMEs.


So now SMEs have a complaints procedure, to RBS, and an appeals procedure, to RBS and a retired Judge, on the payroll of RBS, will review it for the FCA.  Do these people think we are stupid?  Yes, is the answer and they have contempt.


Also, is made mention of how much better it would be for everyone if they would stop bothering about their devastated lives arising and instead focus on complaining about how their financial disembowelment was not very well explained.  There is veiled threat here as well, if you do not go through the RBS administered complaints system there will be delays because it is all so complicated. I would question, why one person’s consequential loss claim should delay another person’s grievances being compensated.


Summary of the Independent Review Findings and Conclusions


Before we look at this section let’s just remind ourselves who undertook this review (note “review” not “investigation” so it’s all very friendly).

Now, I do not know much about Promontory except they appear to have a bit of chequered history in the sense of not  managing conflicts of interest very well but I do know Mazars.


Mazars is a firm of accountants and insolvency practitioners.  Naturally they are part of the accountancy and insolvency professions and accordingly are not entirely “new” or independent of the conduct into which they are being asked to review.   Of all the firms to use in the UK, I suppose they have had less involvement with RBS than most of the other large firms like EY, Deloitte, PWC, KPMG, BDO, Grant Thornton, Baker Tilly, FRP etc but they are down this list – may be at number 15.  One issue, though, is that I bet they would like very much to have lots of work from RBS in the future. Secondly, even if they have not had much to do with GRG, they might have undertaken very similar work for HSBC, Barclays and/or Lloyds or any of the tens of Asset Based Lenders like Bibby.  So they are hardly likely to find fault or be very critical of practices that they have either taken part in or that their own clients or relationships have shown them.   This is an important conflict of interest.


Not only this though, the insolvency world is very small and everyone knows just about everyone else.  It is not beyond possibility that R3 and/or the BBA had “words with” Mazars either formally or informally or that one of the large accountancy firms or a large law firm had, in order to suggest to Mazars to keep the tone friendly and to help RBS with this situation.


So this is the section that starts the non-criticisms relating to the limited findings and even with all this they found “widespread inappropriate treatment” in much the same way as “inappropriate social interaction” is a wordy way to describe a mugging.


Key review findings


1.1 a. and b. in this list are minor but are put first perhaps hoping we will skip over the next few.  The implication and emphasis is that what is to follow is probably less serious.   A bit like in the mugging example, the first complaint about the mugger is that he was rude and lying about wanting directions.


1.1 c. is slipped in and what amounts to gouging as much out of struggling customers as they possibly can is described as “undue focus on pricing increases”.  Like the muggers “undue focus on property redistribution”.


In 1.1 d. they cannot find a rationale for the gouging – this is because the rationale was implicitly understood by everyone – charge as much as you can and sod the consequences to the customer.


1.1 e. hides within its criticism of the way they used valuations that hundreds of businesses were wrecked on dodgy valuations.   When RBS ask you to do a valuation, particularly GRG, everyone knows what they want, so there is no need to say “We want the lowest possible valuation so we can go in” and quite often it will only take a small change in a valuation to trigger a covenant default and this is all that is needed.  This important trigger point is breezed over as if, “oh, it’s just a minor difference of opinion. Nothing to see here. Ooh! Look! A butterfly…”.


1.1 f. and g. are just padding about communications and complaints procedures. Essentially the criticism is that RBS should have explained more as it “disembowelled” its victims and then handed them feedback form.  Of course, in the future I am sure RBS will communicate better because it will add costs they can put on the customer and when challenged they can say “Sorry, but the FCA requires us to tell you in detail why and how we are taking your home”.


1.1 h. states “a failure to handle the conflicts of interest INHERENT [my emphasis, because clearly the FCA will not emphasise anything] in the structure…”.   I would imagine the word “inherent” was left in by accident because for once it is a bit damning. It means that anyone in management should have seen that there was a problem and, may be, they should have done something about it.


At 1.3 we then have the similar list of findings as in the summary published in November except that the wording is getting opaquer and this leaves questions begging.


For example, when the report says, “no widespread” it must suggest that there was SOME.

Some things are less important than others.  To be honest, most of the victims I have met and spoken to are not really complaining about the lack of explanation for why they were robbed and so if lack of communication was not “widespread”  it is not a big issue.


To state, however, there was “not a widespread practice of identifying customers for transfer for inappropriate reasons, such as their potential value to GRG [etc.]” without then saying how much there actually was is, frankly, disingenuous.  It suggests an intention to mislead or at least obfuscate.  If there was one such incident then all the cases involving that GRG member of staff should be investigated and any others connected with it.  It was “not a widespread practice” for Fred West to murder girls, but it was right to get to the bottom of exactly how many he did kill rather than concluding that “in the great scheme of things, he hardly killed anyone”.


The same issue arises to most of the points in 1.3 a to h.


In 1.3 a. we see the word “artificially” used.  This is a qualifier to the word “engineer” that could hide all sorts of appalling, unethical, and unfair behaviour that would not be “artificial”. In fact, the conclusion to draw is that since the word “artificial” is there, that RBS did engineer a position to cause or facilitate the transfer to GRG, it just was not “artificial”.  We can only hope then that Part 2 of this review, now in progress supposedly, will look at precisely what RBS did do to engineer these insolvencies.


Paragraph 1.4 hides much and needs careful deconstruction.  A mere 86% of the 207 reviewed cases including “inappropriate treatment”.  This is dropped in without comment or anything.  Err… did you say 86%?  Like, that’s nearly all, don’t you think this deserves some kind of comment?  How about “endemic misappropriation of value and abuse of SMEs?”


But interestingly even this paragraph tries to hide some interesting points.


Instead of saying, with a bit of incredulity and disgust, “nearly two-thirds of all businesses put into GRG were probably viable” it says “over a third” were probably not viable and could be expected to go bust.   To phrase it in this way, again, shows a bias.  The issue here is not how many businesses were not viable; the big issue is how many viable businesses were wrecked.


It is useful though what we are now getting closer the actual number of businesses transferred into GRG during just this five year period i.e. 5900.  As another aside, this was also a period in which RBS knew it was coming under increasing scrutiny – remember we had more vocal complaints about banks generally the noise leading to Tomlinson was growing.


Now, I am no statistician but is a sample of 178 a statistically relevant sample from 5900?  It might be but it does leave one-hell-of-a-lot of unexamined cases.  It is about a 3 in 100 chance of the Reviewers finding the bad cases.  Of course, they must and did find a few. But is the description of “not widespread” acceptable given the sample size?  I doubt it – any mathematicians out there?


There is, however, another point.  It is that this review is focused on a sub-set of a sub-set of a sub-set of the businesses that were abused by RBS.  This paragraph tells us not to worry about the third of businesses that were not viable because they would have gone bust anyway.  It might be true that they would have gone bust. In fact, the whole reason for these recoveries departments in banks is to manage the bank’s exposure to such customers and so to ignore them for this review is not right.  The outcomes for these problem customers could still be made worse or better depending on how GRG treated them and there was still plenty of scope for abuse by GRG. In fact, probably more so.  In the insolvency industry, there is an unattractive (if not downright unethical) contempt for ordinary creditors and this is illustrated by an industrywide practice of basically taking whatever you want, when the only ultimate losers are the ordinary creditors or even the owners.  So, in all these “liquidation” case scenarios there is likely to be even less scrutiny of what the bank helps itself to.   I have described these cases before as the “fill your boots on this one boys” cases, because this is precisely what bankers say to you on them.


The figures in this paragraph start to be confusing.  The review says the review found 16% of the viable businesses had experienced “inappropriate action… which appeared likely to have caused material financial distress”.  Clearly there is a lot of room here to hide a great deal more abuse than 16%.  Firstly, it has to have caused “material” financial distress which means that if the situation was already distressed (quite likely in the circumstances) then the bank stealing just a small amount was not a problem.  Secondly, it must have “appeared likely” which is quite a high hurdle to get over.


This paragraph also suggests that “there were seldom clear-cut causal links” (which must mean there were some, as before) and this seems to let the bank off the hook like “Oh, it’s all so complicated! Who knows why businesses go bust?”


Paragraph 1.5 is a bit like a “get out of jail card”.  Firstly, it says a “pragmatic approach” was adopted. What does this mean?  I suppose no one can object to it, I mean, no one is going to say “I suggest you take an un-pragmatic approach to this review” are they? So why say it?


It is stated because the rest of the paragraph is basically a set of excuses for obfuscation and lack of precision.  It seems to be saying that they did not focus on the legality of any of the problems but focused on what the customers were complaining about. And, no doubt, this could be fine but it does leave the question then begging, “Well, what about the legal position? Was it legal to use conflicted valuations to trigger a default that led to collapse to enable the inappropriate application of fees and charges?”

What is the legal position in the cases where you did find that the bank had been a shadow director?  Have you informed the Insolvency Service or the Insolvency Practitioner dealing with that case?


Independent Review’s thematic findings


So far we have only been looking at the summary of the report. Now we get to the actual findings and they are set out under headings.


GRG objectives and strategy


Finally, after lying to Parliament, lying to newspapers (so what) and lying in Court, RBS has admitted to the Independent Reviewers that GRG was meant to be “a major contributor to RBS’s financial objectives”.  Whether this was “revenue generation” or “protection of capital”, it makes no difference.  It means that the main role of GRG was to maximise money coming in from customers.  Nothing wrong with that you might say and I might even agree but why then pretend otherwise for years and years?  Why also deny it to the customers?


The second objective of GRG is either disingenuous or hogwash depending on who is reading.  To a lay person, you might think being “at the leading edge of the wider rescue culture” sounds like a worthy objective. To a cynical hack from the insolvency industry, I know that the “wider rescue culture” is how to get back as much as possible for the bank.  In fact, the methods of GRG of screwing down debtors into Property Participation Agreements and Equity Participation Agreements have propagated through the “wider rescue” community.  GRG was at the forefront of establishing and enhancing unethical and unfair “rescue” practices for the insolvency industry.  All the banks tried to copy GRG.  HBOS Reading developed their own version of it and they were just too greedy.  If they had stolen just a little bit less, like GRG, then they would have got away scot-free.  Remember that this insolvency department now called GRG was previously called “Specialised Lending Services” for which you could not get a more Orwellian title if you tried.  I always laughed “Specialised Lending” is asking for your money back – but it was not a joke.  It’s like the CIA’s use of euphemisms and the point about using euphemisms is that they do successfully hide the reality of what you are doing.  The use of the word “pacification” when you are bombing  and “rescue” when you mean gouging come from the same guidebook.


Alternatively, and taking it at face value i.e. if we give the words what might be their true meaning, then it is absolute drivel.  SLS was never about helping customers or easing their difficulties and GRG was an intensification of the same department.  GRG was about recovering from borrowers and in the 1990s and 2000s they discovered that by using a default to trigger all the powers in their documents, they could sweep all the value out of business into their own coffers.  Who else behaved like this?  Michael Milken and Ivan Boesky the crooked financiers in the USA who developed the “loan to own” model using defaults on bonds, that’s who.


Paragraph 2.3 is so gentle one might think it adds nothing.  In fact, however, this is damning of the Senior Management of the Bank.   It might be considered unfair to expect the GRG staff themselves to see the “bigger picture” as to how their strategic objectives might cause conflicts with the bank’s treatment of its customers but it should (and let’s not be mealy mouthed about this “they did”) have been very obvious to the management above GRG.




In fact, I am pretty sure everyone in banks, right the way up to the Board of directors, knows that the “recoveries” section is a frightening place for customers to end up.  I have heard very senior regional and local area managers from banks, and Relationship Managers, talk in hushed tones and with fear about “What goes on in Recoveries”.  Of course this is the case.  Most of the bank is about positivity and booming businesses; it is about getting money out of the door and everyone doing well.  “Recoveries” is all about what happens to you if it all goes wrong.


What has happened historically is that banks’ managements, right up to board level, have tended to ignore the recoveries departments in the same way we try to ignore sewage workers.    This does not, however, excuse them from their negligence in setting up and managing these sections of their businesses.


A bit of history:

Recoveries Departments at banks might not have been “profit centres” for decades until the late 1990s, the turn of the century and the particularly in the “noughties”.

Because the law was different back in the day and how banks acted was different they really were about just trying to get the bank’s money back when lending went bad or so it appears.


In the 1980s and 1990s a few things happened that changed the landscape of the insolvency sector.

The upshot off all the changes was that banks discovered that not only was there no need to lose money when customer went bust, but that you could actually make money – a lot of money.

Along with this they also realised that if they bought the assets, particularly property assets, from their bust customers at “fire sale” values and then sell them a few years later when property prices had gone up, they were able to make even more money.  The real trick was that no one could really object because if the bank was owed enough money, ostensibly no one was affected by the price paid notionally for the asset.  Insolvency Practitioners are specifically banned from buying assets from the cases they work in this way for precisely the same reasons that West Register should never have been allowed to buy assets from its own customers in GRG.  The conflicts of interest are just too large and too obvious.


In these recoveries departments, the staff also found a way to scam better bonuses out of their banks.

It works like this.  When the customer transfers to GRG you make the largest provision you possibly can – may be ask one of your valuer colleagues to provide a very pessimistic valuation – and so the bank “writes off” a great deal of debt owed by the customer.  [Don’t forget that the “write off” does not have any benefit for the customer – he still owes the full amount.]  This loss on the lending is put through the Profit & Loss account of the bank but in GRG you do not care because that loss is shared with everyone in the bank so only costs you pennies.

What happens now in GRG is that the actual recovery from the customer is more than the provision.  And so, abracadabra, you have made a profit and all that profit is what you in GRG have done.  And so GRG are given bonuses because they have done really well.

It was and remains obvious to everyone involved that there are enormous problems of Conflicts of Interest arising from a customer passing from “good bank” to “bad bank”.


To use the phrase, at 2.4, “There was a need for careful balance of focus in the management…[to make it fair]” and then to just leave it there is disingenuous.  It suggests that something will be done and yet leaves the criticism as mild as possible.

This paragraph should say something like:

“It is appalling and disgraceful that senior management with all their risk management skills, MBAs and pay packets chose to ignore the blatant inequities going on right under their noses.  There is no excuse that senior management and board level for this lack of oversight and complacency.  These people should have no place in a financial institution since, quite simply, they cannot be trusted”.


Governance and oversight


Sadly, paragraph 2.5 basically states that if something is not regulated then bankers will run amok.  In spite of there being “fit and proper person” requirements for working in the financial services industry and similar corporate rules applicable for banks, it is clear that in regard to actual conduct, all of this stuff “goes out the window”.  May be the level of ethics and morality is so low in the financial industry, that expectations of what actually happens in unregulated areas is also so low.  The test of an industry ought to be not about its compliance in regulated areas, but rather how it behaves in the unregulated part of the industry.


GRG actions “had the potential to exacerbate the already difficult circumstances” is so mealy mouthed it is an insult to the victims arising from this mistreatment.  It is such a mild rebuke for such behaviour as, for example, significantly increasing interest payments on loans and overdrafts precisely when the customer was having cash flow problems; or levying exorbitant fees against people already struggling to pay their debts.  Such behaviours did not have the “potential” to exacerbate the problems, they always did exacerbate the problems. Basically, it is “kicking a man when he is down”  and in fact this is the fundamental issue in this report.


When a customer defaults, the terms and conditions of the bank’s lending are so one-sided and so draconian that the bank has the power to sweep away all the value of a business to itself.  When this power is mixed with lack of oversight, conflicts of interest, incentives to abuse and zero transparency it is only natural that those involved gradually lose their ethical and moral compasses.   It actually makes little difference whether the customer is tiny, an SME or a large customer, the banking industry and all those in it, now accept the standard terms and conditions of bank lending as if they are largely unnegotiable.  The only reason we hear little about defaulting lending to large corporates is that the directors themselves have rarely given Personal Guarantees and accordingly are not so badly dealt with when their corporates collapse.  Also the sums are often so large that amounts owed to ordinary creditors are considered insignificant.  As long as the directors of these corporates do not complain along the way – about their bankers sweeping away most of the value in the business – they can be assured they will be able to head up another large corporate in the future.


The rest of paragraph 2.6 b to e, essentially sets out some factors as to why we should feel sorry for RBS.


RBS and GRG were aware of the “potential for harm to customers” and they just did not care.  Being in the insolvency industry does harden you to sob stories and it is not difficult to become complacent and hard-hearted to the ordinary circumstance of your job.  Surgeons might “joke” about their patients.  The point is that it is senior managements’ role to keep everyone in a business to focus on doing the right thing.  It is also the case that individuals must also take some responsibility for their conduct – this is why there have been leaks by whistleblowers.


At 2.7 “GRG needed a framework of systems and controls to ensure that key risks to customers are identified, managed and appropriately mitigated”. Almost every word of that statement should be emphasised. This shows systemic and systematic failure of senior management and the board at RBS.  It is also completely unacceptable and disingenuous for RBS to suggest it never realised all this was going on. In the same way it is disingenuous and is now being revealed as lying then Lloyds/HBOS states that it had no idea about what went on at HBOS Reading – they knew; they buried it; they tried to cover up; and now they are trying to ridicule, delay and obfuscate.


It is almost funny that the only “crime” that the FCA can nail onto RBS is the failure to implement the Treating Customers Fairly (TCF) initiative.  It is funny like in a “W1A” way except the consequences for thousands of people have been dire.  Again, each incident of failure outlined in this report should have a case study alongside it. Only then would the words have some meaning.


At 2.7 g , again it is illustrative of senior management failure.  It can almost be forgiven if an organisation fails to comply with outside regulation or rules etc. because collectively it just might not understand/know/appreciate it; Still bad but, sort of understandable as institutional incompetence.  When, however, there are institutionalised breaches of its own policies and procedures, then it is not a set of mistakes – it is both systemic and systematic – because it means the management do know about it and are deliberately allowing it or facilitating it.  You can bet that if RBS had been losing money through any lack of following internal compliance, then people would have been held accountable and sacked.


Staff Objectives


Again in these paragraphs it is the opaque language that is used that is the problem.  “The independent review noted a tone and emphasis … which placed financial objectives first…”. The use of “tone and emphasis” potentially hides so much.  And at 2.10 “incremental income” was used as the measure of staff performance.  These terms are such a mild rebuke for what actually went on.  What there paragraphs mean is that the GRG staff were incentivised to gouge the customers and sod the consequence to those customers.


Incentivising staff to improve the bottom line is a genuine and justifiable modus operandi but (1) do not then pretend these staff are there to help customers (2) do not deny the fact by lying to a Parliamentary Committee; (3) take care that the incentives do not enable those staff to seriously mistreat customers; and (4) do not expect society to leave you with the power to set the terms and conditions of contracts with those people nor to allow you to abuse those powers when problems are encountered.


The language of paragraph 2.11, again, hides the horror of the implications of what is stated.  The language throughout his report is mealy mouthed.


Transfers to GRG


Paragraph 2.13 starts “The criteria for transfer of a customer to GRG were widely-drawn and gave significant discretion to RBS staff” and it goes on to suggest “a need for checks and balances”.  What this omits to say is that

because the staff were incentivised; and

because there were conflicts of interest (i.e. staff benefitted); and

because there was lack of ethical management oversight; and

because there was lack of transparency; and

because there was a lack of integrity or common decency; and

because there was typical insolvency industry contempt for debtors and creditors;

that the wide discretion afforded to GRG staff was bound to be abused and in fact was on many occasions.


In paragraph 2.15, what is the word “general” doing there? Was there a practice at all of targeting businesses based on their value to GRG?  This paragraph is like an apology as if “There were quite a few instances but not that many”.  Like, Fred West hardly murdered anyone when compared with the number of people in Gloucester.


Paragraph 2.16 demonstrates another way that RBS has been able to frame the terms of reference for this report. Somehow RBS was allowed to set the sample in such a way that “almost all customers” transferred during the sample period “exhibited” signs of financial difficulties”.  Well, I would suggest this has a lot to do with the fact that EVERY BUSINESS in 2008 was probably exhibiting such signs but also because this ignores the involvement of RBS itself in (1) creating the circumstances leading to that distress and (2) specifically causing the financial distress by fraudulently selling or pressurising these customers into toxic Interest Rate Hedging Products.


To say at 2.17 that RBS “failed to recognise” the conflicts of interest inherent in the GRG model is to try to completely let RBS off the hook.  I would suggest that they did not fail to recognise anything.  They saw it and they knew about it but they decided to ignore the problem as it made them too much money.  The wrongdoings are hidden and, statistically speaking, a small percentage of their bank’s happy customers – so all the whinging must be just anomalies, right? In addition, the industry that is meant to police it (i.e. regulated professionals like Insolvency Practitioners, solicitors and RICS valuers) is captured because of all the, again, obvious and inherent conflicts of interest.  These professionals make so much money from banks that, of course, they are not going to police them.  We know that liquidator and administrators will bend over backwards to avoid suing a bank.  The few small firms where there are exceptions prove the point.


To be honest, the lack of communications outlined in 2.18 was the least of these customers’ problems.  To even discuss the lack of decent communications could be seen as a ploy to pad out this report and it gives RBS the ability to say something like “We are happy to implement many of the recommendations of the report even though we do not agree with all of them” and by saying this it sounds like all will be well in the future.




These paragraphs are disingenuous as GRG made insufficient money out of helping businesses and their owners to financially survive and so “of course” they did not place any emphasis on “turnaround”.


This whole section is damning and should be enough to have RBS wound up as a danger to society.  The Summary at 2.27 shows what a disgrace the senior management are and were for ignoring the maltreatment for years.  Hundreds of peoples’ live were ruined and for each business that RBS ruined, it would have had a “domino effect” on others so you can bet (and I know this for a fact anyway) that as RBS pulled the plug on one business they would have known where the effects would be felt amongst their own client base and they would be ready to reap the further benefits of their handiwork as the next customer was pushed into default.




Has RBS in this section, again, pulled off a great deception?  I am not a banker nor a banking accountant but something peculiar happens when banks lend to customers and it’s not at all obvious.


This report, again influenced by RBS, allows the assumption that “when a customer gets into difficulties, the bank is subject to increased risk” to remain un-challenged. I think it is time to challenge this analysis.


Let’s compare this with something.  Let’s look at betting on a horse race.


When you place a bet on a horse before the start of the race, you take your money and you look at the odds of the horses; you decide where to place you bet and you accept the odds you are given.  Odds are a bit like an interest rate because they represent someone’s assessment of the likely outcome of the race.

You have placed your bet and then the race starts.  During the race the odds do not change and neither has any risk because you have already placed your bet and you bet on the odds (i.e. the risk) at the outset.  What IS changing during the race is the likelihood of the outcome of the race but not the initial risk of the race itself.


So, when money is lent, it is a bit like betting on a race.  Some businesses are riskier than others so you charge them more. You hope that all your “horses” will come home and repay their loans.  The costs of the ones that do not, are already factored into the “price” of the loan at the very beginning.  What changes during the period of the loan is the outcome.  To allow a bank to change the interest rate during the period of the loan is a bit like a punter asking for his money back during the race.


Banks will talk about the “costs of funds” etc. in response to this challenge and may be this is a point but that is not what bankers talk about in GRG; they talk about “increased risk” when they have already lent the money.  You can talk about “increased risk” before a loan is made, because that is when the “risky” decision is made.  After the loan is made, then the “bet” is down and the risk is accepted and priced in.


There is another point in this part of the report where there is a kind of “credibility gap”.


Each year thousands of businesses do run into trouble and so just by the “law of averages” RBS should get its share of businesses that should be transferred into GRG.  These would be uncontroversial. So, in other words, there ought to be a majority of cases that went into GRG that are not controversial.  So, in this report where the Independent Reviewers excuse RBS/GRG behaviour on the grounds that they hardly ever, statistically, gouged businesses inappropriately it really is unacceptable.   In fact, it is dangerously complacent and like telling RBS how to do the same in the future, only this time, to get away with it.


Basically, what you do is only gouge 5% of your SMEs that get into trouble and it will disappear in the fog of the numbers.   From famous sociological studies of Longshoreman and Bread delivery men [1], this is like classic “white-collar” and indeed “blue-collar” theft from your employer  – “Do not be greedy, and we will all do very nicely, thank you”.


Hiding your crimes amongst a majority of legitimate transactions and not being too greedy, is the chosen modus operandi of thousands of crooks.


Therefore, we should be very suspicious of the cases in GRG where there was mistreatment and it is not acceptable to dismiss them as anomalies. Each case of a ruined business matters in exactly the same way as each murder by Fred West mattered.


So whenever the report says “no widespread” or “no systematic” practice of wrongdoing was found, the question must be asked “Ah Yes! But what instances of the wrongdoing DID you find?”




Up until very recently the finance industry was of the opinion that once a facility (i.e. loan or overdraft) was in default (i.e. one of the terms or conditions had been triggered) then under the contract the lender was able to specify whatever interest rate and to levy whatever charges it wanted to.   This is because the terms and conditions in the loan agreements and overdraft agreements basically say this.


So, for my whole career, and probably for all time before, bankers have arbitrarily applied interest increases and penalty fees – described in all sorts of different ways – to their customers in difficulties.  And believe me, it is largely arbitrary because I have been in meetings where such decisions have been made.  Insofar as there is any “calculation” applied in the decision making process, it is more linked to what the poor SME can bear and little to do with any perceived risk or time-cost justification.  The interest rates are increased because “the bank has an increased risk” (I have addressed this issue above) and the fees charged are chosen on the basis of “just not looking too stupidly high”.  When I did my secondment in RBS/SLS in the late 1990s, there was a tiny degree of embarrassment amongst the managers about these decisions.  It appears to me that since then that embarrassment has largely disappeared and was replaced with audacity because there was no oversight, no transparency, the insolvency industry professionals colluded and the victims were silenced by (1) lack of funds to do anything; and (2) inability to find anyone to challenge the practices because every law firm with any banking/insolvency capability had been “captured” by the Banks.


A recent case [2], however, has looked at this issue and it suggests that the contractual discretion in the agreements should not be exercised capriciously.  It is quite incredible that in 2017 this is even an issue.   This case does not, at all, solve the problem, it just tells banks to be a bit more careful about how they “invent” their charges.


At 2.46 the report talks about RBS finally, in 2011, giving its GRG staff some guidance to start to roll back some of the more disgraceful fee-charging behaviours, but since we are not privy this guidance we cannot judge whether it is more about covering-up and getting better at the gouging than actually preventing abuses.  And then latter at paragraph 2.49 we are told that the guidance had to be revised in 2013 to prevent the more “egregious” practices.  This use of the word “egregious” is the first time in the report where a strongly critical word is used.  “Egregious” is a funny word, though, because it has two means – (1) outstandingly bad and (2) outstandingly good [go look it up if you do not believe me].  Of all the words to use then this is absolutely perfect.  Whether the gouging of clients was an outstandingly good thing or bad thing depends entirely on your point of view.  The Bank thought the gouging for profits outstandingly good whilst the rest of us think it was outstandingly bad.


Another point to remind ourselves at this point in the report and touched on above, is that Mazars, accountants and insolvency practitioners, undertook much of the investigation and reporting in this review.  Therefore, where at paragraph 2.50 it states that “The independent review was required to form a view about the appropriateness of costs …” it is misleading because we keep reading that word “independent”.  Mazars cannot properly be described as independent in this regard.

Mazars are part of the “insolvency industry” which has colluded with the banks for generations.  It was R3 (in its previous guise of SPI) that managed to keep banks in the insolvency “driving seat” when in 2002 they, along with BBA (British Banking Association) managed to get the Enterprise Act amended.  All the Mazars insolvency and restructuring partners have industry connections and none of them are known champions of cleaning up the grubby insolvency profession.  And like all professionals they charge (like me) eye-watering hourly rates -£200 – £300 – £400 per hour, if they can, and so they are unlikely to be particularly critical about the “appropriateness of costs” incurred in insolvency  related circumstances.


The report states that 57% 57%! of customers in the sample received inappropriate treatment relating to pricing and this is explained as mainly through lack of recording and explaining the rationale for the prices.


The findings on Pricing decisions at paragraph 2.51 a to k are damning.  A couple of examples are illustrative and important.


See again at 2.51 a, the use of passivity-inferring language, “GRG… sought” to impose price increases. By using the word “sought” it suggests the victims had some reasonable or realistic choice in the matter which is complete fantasy.  “Sought” is used in the same way that a mugger “seeks” to impose a mugging.   This sentence should be “GRG imposed on customers a wide range of pricing increases and charges”. Not least because the bank just takes money from the bank account – they are in control of it after all.  An SME not only has no choice, they cannot stop it even if they try.


At paragraph 2.51 i there is a strong suggestion that the bank was acting as shadow director.  This is not the first mention of the concept in the report, there are others. An ethical bank would ask for these cases to be identified and seek to look into them. Were the actual directors disqualified as director by the Insolvency Service?  What impact on other creditors did this have?  The liquidators of these businesses should be contacted and told of this finding so that if any action should be taken against in the bank then it can be undertaken.  Of course, RBS is not going to do this.  So has the Insolvency Service read this report and are they asking for details of these findings to allow them to address either the miscarriages of justice that might have occurred or to allow liquidators to make claims against the bank?  Has HMRC read this report?  Most often the instruction from the bank that we are discussing here is “Don’t bother paying HMRC”.  How do I know this?  Because I have been in those meetings where those instructions have been given is how.


At paragraph 2.51 k – prices were still increased even when the exposure was reduced.  This behaviour is not ok and puts paid to the RBS nonsense that their prices reflect risk management considerations.  These are all “after the event” excuses and explanations.




Let’s talk about valuations.  Valuations are incredibly important in default and insolvency situations.  And because they are so important, great care ought to be taken in that regard.

Firstly, any valuation undertaken should be done by someone without any hint of a conflict of interest.  That RBS had its own in-house valuers and used their valuations as the basis for life-changing decisions, enabling it to purchase assets at “knock down” prices and later to make large profits when asset values recovered is, again, indicative of the attitude in the bank of “We can do what we like”.  It should also be said, though, that like the insolvency professionals are largely “captured” by the Banks, so are the large firms of valuers.   Paragraph 2.55 is damning but is mealy mouthed as usual and paragraph 2.56 includes an underwhelming recommendation which underestimates the extent of the problem.  Valuations obtained for banks from firms that do work for banks cannot be entirely trusted.


Customer Experience


To be honest it is insulting and disingenuous in this report to even mention the concepts of TCF (Treat Customers Fairly) since it clearly was irrelevant to how RBS managed its recoveries business.  Mind you, it’s a nonsense concept in any case and that the FCA had to try to impose such in initiative on the industry says everything. Any industry that has to be told “treat customers fairly” needs a major shake up.


Something should be done specifically about the eight cases identified in paragraph 2.60 where RBS was found to be a shadow director. Something should be done by the RBS itself, by the FCA and by the Insolvency Service. It is not acceptable for these cases to remain unexamined because there could be significant miscarriages of justice. Where is the follow up on this?




Considering it is a regulatory requirement that complaints are handled properly, the FCA is remarkably sanguine about this aspect.


It was clearly RBS’s attitude that complaints from this section just related to the pain that people feel when their business collapses and therefore could safely be ignored.


It is comic that in order to comply with the bank’s policy of “zero justifiable complaints” (commendable in a kind of “Macdonalds” way), GRG practiced a policy of not reporting complaints at all.  The senior risk management of RBS should have identified that GRG was bound to be an area of particular complaint generation because of the unfortunate circumstances but also that because of that, it would not be difficult for genuine and justifiable complaints to get lost amongst the general “noise” of those customers that went bust.  Risk management at RBS should have targeted this department for careful examination.

GRG learnt no lessons from complaints because the management and staff did not care enough.


Third Parties


Not only should GRG have been aware of the “potential conflict” as set out in paragraph 2.68 – in fact it is obvious to anyone with half-a-brain that they would have known about this conflict of interest – but we now know that secondees, for they are what we are talking about here, regularly exploited their inside knowledge to further the gains for their respective firms.  This was covered in a story by James Hurley in The Times on 8th November[3] .   Is anyone really surprised by this. Derrr! The reason why firms send in their secondees is to gain work from RBS.  When I was seconded it was just at the beginning of this particular meal ticket and clearly it became more audacious.   Andrew Quoi has written a long and detailed note to both RBS and the FCA about this specific abuse in his own case involving PWC.  Again, it is incredible that instead of accepting the complaint, all the relevant organisations go into “deny mode”.  Stupidly they do this before they have had a chance to consider it which illustrates that investigation of the issue is closed down from the outset.


Customers exiting from GRG


There was only limited evidence of customers being kept in GRG for reasons that were inappropriate …”. Oh well, that’s alright then.  As long as they only abused a few people and wrecked a few families lives its fine.


West Register


This whole section is another indictment and I am sure that the next stage of the investigation will reveal even more about the inequities and abuses in this set up.


That no one senior in the bank saw fit to look into what was going on, to question the proprietary of what was being done and to raise issues at board level merely illustrates again what a shower the senior management was.


West Register institutionalised the abuse of businesses and it should be noted that so far we have only been made aware in this report of the abuses of SMEs.  There is much to be revealed when investigators look at what was done to larger corporates.


I will write again and more about West Register because it deserves a great deal of attention.




That there was a part of GRG called the “Strategic Investment Group” is illustrative that the bank was institutionally set up to take advantage of customers who were in trouble.


It ought to be the case that if the bank thought something was worth a “strategic investment” then it should have offered support through lending and/or a bit of forbearance.


The problem was that because of all the issues set out earlier in the report, of course it was only going to follow that the SIG staff executed their roles in complete congruence with the rest of GRG and RBS – they took advantage of their position to cherry-pick assets and advantage from customers who had problems.  [n.b. I should mention, however, that I have been told by many victims that they had not defaulted at all.  Further work needs to be undertaken on this issue.  It is probably the case that most customers do not realise that under a bank’s standard terms and conditions they are probably “technically” and legally in default as soon as the ink is dry on an agreement and accordingly are then vulnerable to the bank’s whim as to when to act upon that default. This is because the standard terms and conditions are deliberately written in this way. ]


As I have said elsewhere, because of the global financial collapse, property prices absolutely plummeted in 2008.  Almost all facilities where they are secured on property will include a default trigger when the value of the property falls below a certain level.  Accordingly, in 2008 probably all lending on property was in default and as set out above, this gave the banks the ability to foreclose/enforce on any customer they wanted to.


If the Government in 2007/2008 had taken any advice from anyone other than bankers and accountants and lawyers who were all on the banking side of industry, they might have been advised to make it a condition, of bailing out the banks, that the banks must exercise the same forbearance to their customers as had been shown to them.  The Government did not do this and there is the suggestion and rumour around the market that in fact the Government told the banks they had a free reign to grab money from wherever they could.

The Government had, of course, become a shareholder and accordingly it was in the Government’s interests to allow this to happen.


This illustrates a pressing problem in our economy involving the banks.  As they lend to everyone and whole sectors and industries, the terms and conditions under which they lend enable them to take advantage of a sector downturn or a “shock”.  They are enabled to enforce their security during the downturn, buy the assets at knockdown prices and then take the benefit of the recovery in that sector or industry.  In this way banks can harvest the whole economy over about a 20 year period as every sector and industry will suffer either a shock or a downturn.  Society creates value in each sector by hard work and the banks harvest it for the benefit of a few very rich individuals.


What is needed is a law creating a “Sector moratorium” a bit like the moratorium that applies in an Administration under the Insolvency Act 1986.  When a “shock” happens in a market or a sector, a senior court should be allowed to make a “sector administration order” to protect all businesses in that sector from banks taking advantage of a temporary downturn.


Customer Outcomes


The authors of the report decided that since about a third of the businesses that were transferred into GRG were, what they call unviable, that there was no need to worry about or investigate how they were mistreated.  This is wrong and in fact dangerously wrong.


Just because a company is bust does not mean that the abuses of a bank are less harmful. When the bank helps itself to the assets of a business, as it is allowed to do under its security, and there is only a compliant and colluding Liquidator to watch, it is allowed to extract even more value than it might do when the pesky owners are still in charge.

A liquidator will tend to encourage the bank not to be too greedy but generally, who wants to bite the hand that feeds them?  And of course the quid pro quo (literally) is that the bank can vote to approve the liquidator’s fees using the unsecured part of its claim against the company.  Hazzah! Everyone is happy except the creditors who have got no idea any of this went on and are repeatedly told the liquidator is there to look after their interests and the owners who (having lost everything) no longer have, what we lawyers call, locus standi, i.e. standing to challenge anything.


The statistics in paragraph 3.4 are appalling as are the findings paragraph 3.5.


What is truly shameful is that many of us did not need this report because we have known about these abuses for years. Not only that, hundreds of SME victims have been telling the FCA and just about everyone else in any kind of powerful position, that this was all going on.


This is the end of the main part of the Interim Summary report. I look forward to receiving the full Section 166 report in due course.


ã James Nicholls 2017

[1] See “Part-time Crime” by Jason Ditton (Macmillan 1977) and “An Anthropological study of Longshoremen and … [industrial relations in Canada]”, G. Mars, 1972 London University.



[2] BHL v Leumi [2017] EWHC 1871 (QB)

[3] The Times, online, 8 November 2017 “Advisers told their firms Global Restructuring Group’s secrets”

Official Receiver Interview? Never go alone

If you go bankrupt or you are a director of a company has been wound up by a court order then you will be asked by an Official Receiver to go to an interview to explain what happened.  I use the term “Official Receiver” but here I am referring to any interview at the Insolvency Service with whatever grade of person you meet and I use the abbreviation “OR”.

Quite often you will be sent a questionnaire booklet to complete and to bring with you to the interview.  Answering these questions and attending the interview are all part of you “cooperating” with the Official Receiver in his duties. If you do not cooperate, eventually you will be forced to cooperate unless your case is so dull and so uncontentious that they might just not bother.

If you ask, can I bring a solicitor with me, the first thing they will probably say is “oh there’s no need for that” and secondly and rather menacingly “How can you afford that? You’re bust aren’t you?”  So if you’re not lulled into a false sense of security you are crushed with the implication of employing a solicitor – nice!

Anyway, it all sounds quite mundane and uncontentious because, after all, why shouldn’t the OR find out what went wrong?  It’s quite likely that some people or organisations lost money when you or your company went bust and SOME companies really do need investigating eg. BHS.   If it was just this innocent and benign, however, it might be fine – but it isn’t.

Am I talking my own book here?  Yes and No.  “Yes” because you need me to go with you and “No” because I don’t care if you use me, but please use someone who will stand up to authority.

And secondly “No” because it happens to be true that you need someone to go with you.

The Official Receiver is a very powerful civil servant with incredible powers and being interviewed by one is pretty similar to being interviewed under caution by the police.

Think you have the right to silence do you, like in American cop shows?  Or that you will be cautioned like “You are not required to say anything but anything you do say will be taken down and used in evidence … blah blah blah”?

Well, think again because there is no “right to silence”. You can be compelled to answer questions.  Not by torture or anything like that (yet) but by Court order and if you disobey a court order you can be put in prison until you DO answer the questions.

Whereas with the police, however, you might think that if you did not commit the crime then you have nothing to fear (but surely you’ve seen enough films and heard of enough cases of miscarriages of justice not to believe that nonsense), with the Official Receiver you ARE actually guilty because YOU HAVE done something bad – YOU’VE GONE BUST and that is a sin in their eyes.  So, in other words, you are already on the “back foot” and lots of these people genuinely see it as their moral duty to punish you.  And that punishment amounts to aggressive questioning and trying to put as much blame on you as they can.

Now, not all ORs are nasty, power mad, incompetents, but do you want to bet your life and wellbeing that the one you meet is not like that?

They are given the job of investigating but remember that they are not trained like the police and they are basically just career civil servants.  If they have any training in investigation techniques or questioning I would be surprised.  Some have many years’ experience of doing it, that is all and whether it is experience of doing it well, appropriately or properly is debatable.

Remember too that none of them have ever run a business so they only have “experience of running a business” from second hand.  In addition, they mainly know about businesses that have gone bust so they have no idea what goes on in successful businesses.  People like me in the insolvency industry also suffer from the same bias. After all, most of my professional life has been in dealing with businesses in serious trouble.  So, here’s a question for you: in my professional life 95% of the businesses I ever came across had a few dodgy “skeletons”.  Does this mean then that 95% of all businesses are up to no good at times or only those that go bust?

So, here’s the problem.  When you go bust you are already feeling pretty wretched about the whole thing and you DO feel guilty and responsible even if you are not to blame at all.  After all, you are responsible for what has happened as a matter of causation – if you hadn’t set up the business or tried to expand or been born, then none of this would have happened, right? So, you do feel at least partially responsible.  This though means that you are incredible vulnerable when you are interviewed. You already feel bad and then along comes this aggressive busy-body with lots of threatening powers (“Oh yes, Mr Spuds we can have you in court just like that if you fail to cooperate”) who then proceeds to demand instant answers to quite difficult questions.

For example, they ask “So when did you first suspect the business was going to fail?”

Sounds like an innocent question doesn’t it but getting this one wrong could cost you dearly.

You already feel bad so any of the following might slip out:

  1. “Well, god knows why I ever thought there was a market for chocolate covered cotton wool, we were probably doomed from the start”; or
  2. “Well it was ok for about 18 months and then 4 years ago we had a bad patch and since then we’ve never really recovered”; or
  3. “I’ve no idea really.  I thought we were fine because we were managing to juggle, you know, robbing Peter to pay Paul and fobbing everyone off and I still think that with the next big order we would have survived”.

In a depressed mood and feeling guilty it would really easy to say something like these but if you do, it will be used to demand money from you.

Anyone who has been in business knows that the whole process is like living on a roller-coaster – great highs when things go well and incredible lows when things go wrong.  Half the time you wonder why you ever set up and the other half of the time you wish you had more time to give it.  Being in business is “living by the seat of your pants” a lot of the time and this applies to every business from the smallest to the largest.   Every year or so when you run a business you will probably “bet the farm” i.e. take a risk that could end the business. This is the nature of being in business.

People like accountants, lawyers, civil servants and judges don’t like this untidy state of affairs and so they tend to ignore it.  They like the idea that a business is set up and the owners gradually get better at it and it grows gently and it never goes bust.  So, if it does go bust someone must be to blame.

So, it is essential when you are asked these kinds of questions to understand what it means in their terms.  In this example what they want to know is not how horrific being in business is, or that you have “wobbled” throughout the whole damn businesses’ life.  No. They want to know that after you really realised that finally the game was up, that you did everything to minimise loss to everyone affected.

Another example of how dangerous they are is that for Bankrupts they almost always induce you to commit the offence of Perjury (that they warn you about at the beginning of the interview).  I don’t think they mean to do this but they are just incompetent.  But believe me if some issue comes to court and you are questioned the Judge will not understand the context and he will just label you as a serial liar.  Perjury is a criminal offence punishable by a large fine and/or imprisonment, so “Thanks OR, for doing that to me”.

How do they do this?

The first question about your assets on the questionnaire is about cash.  You would be right to be tempted to turn out your pockets and put “£5.87” in the box but they always say “We don’t mean what’s in your pocket or the bit of cash you have for your shopping. We mean do you have any large wedges of cash at home or in a safe etc?”.  So you say “No, nothing like that” and so you put Zero on the questionnaire for how much cash you have.  Later on you swear on pain of committing perjury as to the truthfulness of this declaration i.e. that you have no cash but you do ACTUALLY have cash and there is no record that they said “Oh don’t worry about that”.

Now, I am not saying that this has caused problems but it is the principle of the thing that they are not competent nor bothered enough to ensure they do not induce you to commit perjury.

At the interview the OR takes you through the answers to the questionnaire and as you answer questions he or she actually writes down in long-hand in pen a summary of what he or she thinks you have said.  So this is not actually a precise record of what is said at the meeting because it is only a summary of what he asked and what you said in reply.

And in these circumstances it is really easy for the imprecision of the exchange to cause you problems.  Quite often the OR asks a question, may be quite a long question and you give quite a long answer because the detail matters.  Well, he can’t be bothered to write all that down so he pithily summarises what he thinks your answer is and you, trying to be as cooperative as possible and trying to get it over and done with as quickly as possible and trying not to irritate the OR at all say “Yes, that’s about it”.  The problem is that it is not “it” and you have just admitted to something that is factually wrong or inaccurate and could easily cause you problems in the future.

Some questions are just full of ambiguity, for example.

OR – Do you own a car?

Victim – Yes, I have a BMW 3i

But do you really?  Have you forgotten that you do not own it and It is on HP or leased?

Another example.

OR – Has your spouse contributed to the purchase of your home?

Victim – No. I don’t think so. I have always paid the mortgage myself.

Oops, you just put your spouse on the back foot about the OR wanting to sell your home to pay his fees.

Last year saw the introduction of another nasty piece of legislation that should have been properly debated but of course was not.  And the Insolvency Industry made no objection to it as far as I can tell.  Directors of companies can now be made to pay if they are at all to blame for the collapse of a business (see my other article “Career Advice – why you should never set up your own business #1”) and so it makes a massive difference as to how you answer these questions.

This is why you need someone with you who is batting for you.  At every interview, I have attended with a client, I have had to correct something or clarify something.

In addition, I have plenty of horror stories of clients who have said something at these interviews and then tried to correct it – very expensive, very difficult and very stressful.


Career advice #1 – why you should never set up your own business.

How amazing! You have your whole professional life to look forward to – the excitement, anticipation, risk-taking and amazing new opportunities for budding entrepreneurs.

What a shame then that you must resist this and become a Civil Servant instead.

We have become a third-world-like country where the safest career to have is one with the Government.

Whatever you do – DO NOT GO INTO BUSINESS and certainly do not set up your own business.

Why so? Why so negative?

Because the final vestiges of Limited Liability for directors went out of the window last year in a little change to the Company Directors Disqualification Act 1986 (CDDA 1986) that no one seemed to notice including all the MPs and Lords that discussed the Small Business, Enterprise and Employment Bill (now the Small Business, Enterprise and Employment Act 2015).

The new section 15A of CDDA 1986 makes it very much more likely that you will have a whacking great debt after your business goes down.

And let’s remind ourselves – most businesses fail within in the first couple of years; and if you are in business for 40 years, you would be very lucky indeed not to be involved in a business collapsing during that time.

When a business fails, even though lots of businesses fail for reasons that look like it is not really the fault of the directors, it is almost always the case that you will be partially to blame. For example:

  • It could be a major customer doesn’t pay – so it’s your fault because you gave too much credit to that one customer;
  • You focus on a product that does not work – your fault for “betting the farm”;
  • Cashflow problems – your fault because under capitalised;

So let’s face it, it will be partly your fault and you will be feeling a bit responsible (unless you are a sociopath like Philip Green).

The first letter you get from the Insolvency Service about Directors Disqualification threatens to take you to Court and that if you fight it will cost you £30,000.  So, they then offer that you can avoid all that if you give a “disqualification undertaking” and so you agree to avoid the hassle and cost and stress not to be a director for, say, five years.

Then you get a letter saying “You know how you accepted that you were partly to blame for the collapse of your company? Well, we’d would like you to pay £40,000 to towards the creditors” (i.e. actually the costs of the Liquidator). This is called a “Compensation Order”.

Of course, you can try to resist this but remember if you do, it will cost you your solicitors’ fees (tens of thousands) and if you lose then you must pay everyone’s costs AND the Compensation Order.

So you then get another offer from the Insolvency Service, “How about you agree to £30,000 and we don’t take you to Court?”  What choice do you have?

So what this minor amendment did, and it was all meant with the best intentions, was:

  1. incentivised the Official Receiver to threaten disqualification; and
  2. massively incentivised directors to spend time, money and effort from giving disqualification undertakings;
  3. Added another major risk to you setting up in business.

But the good thing is that this will mean more money for lawyers and Insolvency Practitioners.  Unfortunately that means less money for entrepreneurs and creditors.

So as I said, join the civil service.

Insolvency law needs massive reform – fraud, malpractice, conflicts and injustice are endemic

This is my new Blog to rant about how appallingly insolvency law and practice is working in the UK.

I have previously blogged about injustices in the system and now the cases are just flooding in.

Worth visiting to start the ball rolling would be my comments on Ian Fraser’s website