The Royal Bank of Scotland (‘’RBS’’) have announced plans to disband their Global Restructuring Group (‘’GRG’’). This appears to be a result of recent controversy stemming from increased claims by small and medium enterprise owners (“SME”) and the Report written
by Lawrence Tomlinson of the Department for Business, Innovation and Skills following his investigation into the practices of GRG (‘’the Tomlinson Report’’).
The GRG division stands alone from RBS with the alleged objective of restructuring customer debts and assisting SME customers who are struggling to meet loan repayments. The aim is to provide the customers with enough business support to steer them away from
collapse. However, the practices followed have been widely criticised and often customers transferred to this division failed to make a turnaround.
The Tomlinson Report highlighted some of the “morally questionable” practices of GRG and stated that RBS had been profiting from struggling businesses that were moved under the supervision of the unit. RBS profited as its GRG division was able to restructure
customer debt to levy higher interest rate charges and additional arrangement fees and margins. GRG has been condemned for selecting struggling businesses from RBS’ pool of customers with the aim of generating a profit. The benefit to RBS for ‘asset rich’
companies to fall under the supervision of the GRG, as opposed to those that are less ‘asset rich,’ would be an obvious benefit if they were abusing their customers and pushing them towards insolvency.
Once under the supervision of GRG there is little transparency in the unit’s actions and business are often unaware of their own position until it is too late. The move towards insolvency for a business is not made clear and this prevents the business from
moving or trading out of the situation or sourcing alternative sources of finance. The businesses contacted for the Tomlinson Report have stated that RBS “artificially distresses” otherwise viable businesses and pushes them towards administration or liquidation.
This allows RBS to extract the maximum revenue it can from the business and is a key player in contributing towards the businesses crumbling financial position. Once the assets of the business have been devalued, the GRG’s property division West Register will
buy the assets at a reduced cost. This is helped by the consistent undervaluation of assets which enables West Register to make quick profit by selling the assets on closer to the real valuation price.
Another practice called into question in the Tomlinson Report was of the Independent Business Review (‘’IBR’’) required by RBS for these failing companies. The Review is undertaken by an external accountancy firm who have high costs that can be from £25,000
and up to be paid by the business owner, who may never even seen the results. Another conflict of interest arises at this stage of the process as RBS is the one to request the IBR and the accountancy firm usually gets its highest paid work from them. It is
therefore obviously in their interest to protect RBS’ financial position.
Following the Tomlinson Report RBS commissioned an investigation and report into GRG that was undertaken by Clifford Chance. The report found that fewer than 10% of businesses transferred to the unit end up in bankruptcy. Following these potentially skewed
results the Financial Conduct Authority (‘’FCA’’) are also currently being consulted in order to investigate the recent practices of GRG.
On Friday 8 August 2014 RBS announced plans to disband GRG. RBS have since issued a statement stating that there was no longer a need for a big unit to deal with troubled businesses due to improvement in the economy.
Derek Sach, head of GRG and Aubrey Adams (head of the property function within GRG) are set to leave the bank in March 2015 following the immediate disbanding of the division. The terms of their termination are not yet clear.
Laura Barlow, the former head of GRG will be moving to a new role to supervise the 650 employees of GRG in a new internal restructuring branch. Ms Barlow’s previous role provides a slightly ominous vision of the future for businesses in need of business support.
A mere renaming of the division now under the umbrella of the bank will surely not provide a sufficient guise for RBS to repeat its behaviour.
In the wake of these actions RBS has announced that they will now wait longer before charging small businesses that default a higher interest rate. Ross McEwan the chief executive officer of RBS has also said that the number of cases being referred to the GRG
had dropped by about 40%.
It was announced that the West Register Unit, that used to advise distressed businesses on property matters and then bid for properties itself, was to be wound up on 17 April 2014.
Derek Sach and Chris Sullivan, the deputy chief executive officer of RBS, firmly denied that GRG was run as a profit making organisation when in front of the Parliamentary Committee. It was eventually admitted to Andrew Tyrie (the Committee chair) that GRG
was merely run in terms of its accounting basis. In response to this Tyrie felt that RBS had been “wilfully obtuse” with the Committee and if the way they deal with customers and regulators reflects on the way they acted with the Parliamentary Committee then
how much can they rely on the bank to be straightforward with them?
Ian Fraser, the author of Shredded: Inside RBS – the Bank that broke Britain has said that RBS is guilty of “acting like a rogue institution” towards its customers facing difficulty and has been ‘wilfully obtuse’ delivering a “belated U-turn” when giving evidence
on the matter.
RBS appear determined to repair their diminished reputation. It is debatable whether shutting its two most controversial departments (West Register & GRG) is a genuine attempt to adhere to correct banking practice or if it is a well-publicised sham.
For more information about any of the above or for practical advice on this or any other aspect of banking and financial disputes, please contact
of the Berg Banking Litigation Team on 0161 833 9211 or email him at
Berg Banking Report or take a look at our
GRG and West Register page for more information on what’s been happening in UK business banking, why, and what businesses can do next.
(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)