'GRG Compensation Scheme' - Impact for Insolvency Practitioners
After PPI and IRHP, yet another retrospective compensation scheme looms on the horizon. Cat MacLean takes a look at how IPs should consider approaching the GRG Compensation Scheme.
Blink and you might have missed it. In what has been termed a particularly good day to bury bad news, RBS announced on the day of the US presidential election that they were launching a compensation scheme for those who were placed in RBS’ Global Restructuring Group (GRG) between the years 2008 and 2013.
The scheme consists of two main elements - an automatic refund of 'complex' fees charged by GRG, and a new complaints process, to be overseen by an Independent Third Party, should SME customers who were in GRG wish to complain about their treatment or challenge the bank’s decision on a previous complaint.
GRG was a department originally entitled 'Specialised Lending Services', set up by RBS to help struggling small business to find their feet again. In around September 2008 SLS changed its name to become GRG. In late 2013, following publication of the Tomlinson report, the FCA decided that RBS should undergo an independent skilled persons review of its lending practices following allegations that GRG put some good and viable businesses into default so it could boost profits.
The review - also known as a section 166 report after the part of the Financial Services and Markets Act (FSMA) to which it refers - was tasked with looking into the banks treatment of customers in financial difficulty. The s166 report was completed in early summer 2016. Whilst its contents have been shared with RBS, it has still not been made public, although it appears that the FCA have found a number of areas of 'inappropriate treatment' towards small businesses, which included among others things the failure to:
- Treat customers fairly
- Consider the long-term viability of the business
- Honour contractual promises
- Act in good faith towards the company
- Document or explain GRG fee charges
The failure to publish the report’s findings has resulted in growing political and media unrest. In response, in an attempt to allay discontent, RBS published details of a proposed scheme to compensate customers charged a number of specific fees, and to consider complaints by customers who had been placed in GRG.
The complex fees which are said to attract an automatic refund are:
- Management / Monitoring Fees: Fees charged to cover the increased costs incurred in relation to managing customers in restructuring situations.
- Asset Sales Fee: Fee charged on the sale of an asset where the customer’s cash flow could not meet the increased margin required by the bank on an ongoing basis.
- Exit Fee: Fee charged at the point of repayment.
- Independent Business Review Fee: Fee charged for the carrying out of an independent business review by an accountant selected by the bank.
- Mezzanine Fee: Fee charged to reflect mezzanine risk (i.e. the debt level above the bank’s standard senior debt appetite).
- Ratchet Fee: Variable fee charged by the bank in relation to a repayment milestone.
- Risk Fee: Fee charged said to reflect 'an increased risk profile' - often charged following a technical event of default, such as breach of a loan to value covenant or failure to agree a formal renewal of expired contractual facilities. Risk fees were also charged, however, upon transfer to GRG.
- Late Management Information (MI) Fee: Fee charged for the late submission of management / financial information by the customer.
- Fees charged in relation to Property Participation Fee Agreements (PPFAs) and Equity Participation Agreements (EPAs) are also included in this review.
Separately, and additional to the issue of complex fees, RBS has set up a new complaints team to consider any new complaints relating to GRG treatment, or to reconsider previous complaints. The complaints process is to be overseen by a retired High Court judge and arbitrator, Sir William Blackburne, to whom any appeal should be directed if a customer is unhappy with the response received from RBS in relation to any new complaint.
So why is any of this relevant for insolvency practitioners? The answer lies in the fact that only a small percentage of all GRG customers survived; many were placed in an insolvency process. The precise number of companies placed in either administration or liquidation is not known, but RBS’ Irish arm, Ulster Bank, recently admitted that only 100 of the 2141 Irish businesses that Ulster Bank transferred to GRG emerged alive - that is, 0.46%. It may be that the total number of businesses who survived GRG in Scotland is higher, but on any view a very significant number were placed in insolvency.
Companies in an insolvency procedure and who have been GRG customers are technically eligible for the scheme, but as any claim by such a company will be regarded as an asset of the company, it will be a claim which only an office holder can consider and advance. As a result, title to pursue a claim in the new compensation process rests with the Insolvency Practitioner appointed to the business. As with the thorny issue of PPI, there will be issues arising for IPs in terms of the duty to creditors (who may include the former directors of partners of the business) to progress any claim on behalf of the body of creditors.
It should be noted that there are a number of exclusions from the scheme:
- Customers will be excluded from the process if fees, although imposed in principle in the years 2008 - 2013, were technically not extracted by the bank until after 2013
- Customers will be excluded if their borrowing exceeded £20 million, even if they were charged a high level of complex fees
- Customers will be excluded if they had previously made a complaint to the Financial Ombudsman (FOS) and FOS had found in favour of the bank
- Customers may be excluded if they are already in litigation with RBS, have intimated a formal Letter Before Action, are about to raise proceedings or have raised proceedings against the bank, although the bank may be prepared to entertain claims if the proceedings are sisted/stayed.
Any compensation agreed by the bank or awarded by the Independent Third Party may be off-set against indebtedness due to RBS, and RBS have specifically provided that “before making any payments in this regard, we will assess each customer’s circumstances on a case-by-case basis and exercise our legal and/or contractual rights of set off where it is appropriate to do so.”
For IPs appointed to a current or former RBS customer specific consideration should be given to the possibility of a claim existing. Where there is an affected insolvent customer, the usual considerations in relation to incurring the expense of advancing a claim will apply: what is it likely to cost to make the claim, and what are the prospects of success?
However, where, as with PPI, the cost of making the claim is likely to be relatively low, and some practitioners likely to be prepared to advance such claims on a no win no fee basis, the IP should be able to discharge his/her duty to creditors without incurring significant cost – and any success fee may in any event be regarded as an outlay in the insolvency.