Woody Allen said: “The lion and the calf shall lie down together but the calf won’t get much sleep.”
He could have been talking about the relationship between the banks and their troubled, small-business clients. The banks are similarly pre-disposed to gobbling up every last bone of these weakened customers.
What the banks like to call their “turnaround” staff actually work in a cosy club of professionals, valuers and insolvency practitioners, and, like many private clubs, loyalty among members is intense and the entry policy strict. Breaking it up is far from easy.
The bank appoints one of its club or insolvency practitioners and valuers to handle a struggling customer.
The insolvency practitioner produces an “independent business review (IBR)” on the client
If insolvency is the recommended route, they will almost certainly get the job and, of course, the fees. The valuer will not do badly either.
In 1999, Richard Page MP told Parliament: “It is like giving a judge and jury £10 for every prisoner whom they set free, but £100 for every prisoner whom they find guilty.”
But Page was shouting in an empty room. His private bill to end the practice was not popular.
More recently, in November 2013, Lawrence Tomlinson produced his report about Royal Bank of Scotland’s turnaround division.
He concluded: “It is also important that the wider potential conflicts of interest between the banks, IBRs, valuers, administrators, insolvency practitioners and receivers are given careful consideration. Where these conflicts occur, it does so at the expense of the business.”
A club supporter in the shape of Clifford Chance responded with an “independent” rebuttal in April 2014. Then the Commons Treasury Committee pointed out that the report was not independent.
What’s to be done? The next Commons Business, Innovation and Skills select committee should consider installing somebody who understands what is acceptable but also knows abuse when they see it.
In short, we need an insolvency ombudsman.
