HBOS in 2017: The ongoing scandal

John Colvin of berg discusses the background to the HBOS scandal, including what the next steps are for small businesses affected.

In January this year, six people, including two HBOS bankers, were convicted in one of the biggest financial scandals the UK has ever seen. They were found guilty of conspiracy to defraud, bribery, and money laundering.

After a six-year investigation – which involved 150 officers and staff members, collected 500,000 pieces of evidence, and cost £245m – justice has finally been brought to the criminals who took advantage of their positions and exploited small businesses.

However, there are still many questions that have been left unanswered. How were six people able to get away with so much for so long? How has Lloyds, the current owner of HBOS, responded? What are the next steps for the small businesses affected?

What was the HBOS scandal?

HBOS manager, Lynden Scourfield, was found to have supplied struggling businesses with loans they didn’t need and couldn’t repay. After the businesses then began to default on their loans (as predicted by Scourfield), they were told to use a turnaround consultancy firm called Quayside Corporate Services.

The firm Scourfield recommended was run by consultant David Mills and his wife, who were working in cahoots with Scourfield.

Scourfield and his colleague Mark Dobson pushed their struggling customers to the corrupt turnaround firm in exchange for bribes, including cash and prostitutes. The firm then used its relationship with the bank to bully already struggling business owners into handing over extortionate fees and assets, such as shares in their companies.

By pushing these businesses into loans they would likely default on, then directing customers to a turnaround firm with extortionate fees, Scourfield syphoned enormous profits for himself and his associates.

What happened to the businesses affected?

A review conducted in 2008 found that 38 struggling businesses found themselves owing a collective £375m worth of debt as a result of the unethical management of their accounts. All 38 of these businesses were managed by Lynden Scourfield.

As a result of the crimes, many of the businesses involved went bankrupt, and some owners lost their homes. The bank later wrote off £245m from its impaired assets division, and Lloyds is continuing to negotiate internal and external reviews, and is struggling to provide answers as to how and why a crime of this magnitude went undetected for so long.

Victims Paul and Nikki Turner, owners of publishing company Zenith, took out a £160,000 business loan with Lynden Scourfield managing their account in 2003. Over the course of the next year, they were referred to Quayside Corporate Services. The couple tried to cut ties with the corrupt turnaround firm on a number of different occasions, yet they continued to receive fees, resulting in 22 repossession attempts on their bungalow. They now campaign for justice for the victims of the HBOS scandal.

Lloyds’ response

Lloyds took over HBOS in the 2008 crisis, which in itself caused a number of banks to collapse. The fraud took place before Lloyds acquired HBOS, and the bank continues to claim that it is also a victim of this crime. A statement given at the trial from Lloyds bank said: “The verdicts relate to criminal acts committed by two individuals within HBOS in conjunction with external parties more than a decade ago.

“Whilst we have fully reviewed customer concerns raised previously, we will review any new concerns on a case-by-case basis taking into account any relevant new information from the trial.”

Lloyds has promised to provide appropriate compensation for those who fell victim to the fraud, and will put aside £100m for compensation.

What are the next steps for affected businesses?

A Lloyds spokesperson has expressed “deep regret”, and said that each case would be treated on an individual basis, and that businesses would be “fairly compensated”.

MPs and legal experts have urged Lloyds to deal with the fraud “honourably” and to compensate business owners, but victims have recently spoken out against the amount set aside for compensation, and have questioned the validity of the review and whether Dame Linda Dobbs – the recently appointed legal expert leading the internal investigation – would be independent and impartial.

64 victims have been included in the compensation scheme, but there are thought to be more than 250 businesses affected by the fraud that are not being accounted for. Some victims have even called to be excluded from the review and most recently the case has been in the news headlines due to the involvement of TV presenter and fraud victim Noel Edmonds.

Through his lawyers, Edmonds has echoed criticisms of the independency and rigorousness of the scheme, and has said unless the scheme is revised to make it fair for victims, his case is already backed with litigation funding and will proceed to court. Whatever the business background, it is likely that without professional guidance, businesses will miss out on the compensation they are owed.

For victims, it is suggested the following steps are taken to ensure they are in the right position to receive fair and appropriate compensation:

• Seek a solicitor that is well-versed in financial compensation schemes in order to offer advice on your situation.
• Contact a competent accountant who can correctly identify the losses you suffered as a result of the scandal.
• Ensure there are no strict time-limits or limitation periods in place with regards to your claim, and if there are, consider issuing a protective claim form, to avoid the limitation period running out.
• Preserve all evidence of dealings with the bank.
• Due to limitation periods, anyone who believes they have been a victim of the HBOS scandal should act quickly to present their case in a credible and comprehensive format.

Due to limitation periods, anyone who believes they have been a victim of the HBOS scandal should act quickly to present their case in a credible and comprehensive format.

John Colvin is a partner in dispute resolution and banking litigation expert at berg.