Elysia entered into business in 2004 with HSBC as its banker. The bank sold the Partnership a structured collar. When trade dropped in 2008/09 and the payments under the structured collar increased, the Partnership began having financial difficulties. The structured collar was taking £120,000 a quarter out of the Partnership, which was unsustainable and eventually the Partnership lost its franchise agreement, rendering it effectively at an end.
The Partnership submitted its claim to the FCA Review. The three hedges that the Partnership had entered into, including the structured collar, were torn up and a full cash redress offer made and accepted. The Partnership thought that the bank was actually taking responsibility for its failures of the past. That was not the case.
A detailed forensic accountants report was prepared to explain the true impact the structured collar had had on the business and to identify the Partnerships consequential losses. However, when the banks decision arrived, the offer was circa £20,000. This was predominantly refunds of bank fees. The additional £7 million that the Partnership claimed in consequential losses was dismissed. The bank averred that even though the Partnership’s cash flows had been destroyed by the structured collar, the bank did not deem that it had caused the Partnership any additional losses.
When we reviewed the decision by the bank, we noted to our surprise that the bank’s s. 166 independent skilled person does not actually appear on the FCA’s panel of s. 166 Independent skilled persons. We complained to the bank, who said it did not matter, and we complained to the FCA who did not think the issue worth responding to.
Essentially the bank found that taking almost £350,000 from a small partnership during the economic down-turn caused no damage. The independent skilled person, who is a large law firm that predominantly works in the Far East – Hong Kong and Asia – where HSBC predominantly works, did not think that the bank could be blamed for any of the financial difficulties the Partnership was caused. That is not surprising if you think that the independent skilled persons are largely over-seen by the banks. The FCA thinks that this kind of connection between the bank and the reviewer is unlikely to have caused the independent skilled person to be swayed.
The Partnership has appealed. The grounds have been substantial. The principal question is “How could the Partnership NOT have been damaged by the loss of such a substantial sum of money?” We await the decision.