Blog: How can a company in liquidation make a claim for swap misselling?

Cat MacLean

Cat MacLean writes about a new scheme which aims to persuade Insolvency Practitioners to pursue claims for a company in liquidation or administration, against banks.

The announcement in June 2012 that the then FSA (now FCA) was launching a review into the misselling of swaps was a pivotal moment, bringing hope to many. However, for some companies, it came too late, with the burden of the swap payments having tipped them into insolvency. For many it has proved well nigh impossible to get the liquidator or insolvency practitioner (often appointed by the bank) to take any interest in the FCA review process. Even if your IP is prepared to take an interest, it seems inevitable that any redress will simply “wash back” to the Bank who are almost invariably the largest and very often the only secured creditor.

Finally some light at the end of the tunnel: in 2013 Redress Services Ltd emerged as the champion of insolvent companies. But how does this work? Surely any “success” for an insolvent company in the FCA Review process is somewhat pyrrhic if any “in principle” redress is simply going to be captured by the bank in any event? When asked if the review process would be able to turn the clock back and put back now insolvent companies in the (solvent) position they would have been in but for the swap, the FCA had indicated that such an outcome was “not impossible”. All would depend, however, on the detail which the company is able to present to demonstrate that but for the swap the company would have remained solvent and would not have gone under.

So how much detail do you need to show that the cost of the swap was the crucial factor in the company’s insolvency? Realistically it will be extremely difficult to demonstrate this in a clear, analytical and objective way without forensic accountancy input. Where a company and its directors can show, with expert input, that the cost of a swap clearly resulted in the company becoming insolvent, then according to the FCA, their argument to be put back in the position they were in must stand at least a chance.

However, there are some major stumbling blocks. The expert input, legal and financial, obviously comes at a cost. A cost that for most insolvent companies, simply cannot be met. And crucially, the insolvent company’s claim belongs to the insolvency practitioner (IP) appointed to administer the liquidation or administration process. Most IPs are wary of taking on claims for which they bear personal accountability, and are very reluctant to pursue,

Step forward, then, Redress Services Ltd (RSL). RSL provides insolvency practitioners (IPs) with a solution to pursue any interest rate hedging product (IRHP or ‘swaps’) mis-selling claims vesting in insolvent companies. RSL offers a fully funded and insured solution to enable IPs to maximise the recoveries to creditors and shareholders, whilst also funding the IP costs.

Any potential claim can be assessed by RSL, at no cost to the IP, using a team of specialists to investigate, assess, report on, calculate losses and detail each mis-sale. This process allows strong claims to be progressed and, where no claim exists, files to be closed.

Where RSL identifies opportunities for recovery, the assessments will detail the quantum of claim (including detailed consequential losses), cause of action and the likely net recovery amount. Where recoveries require litigation, RSL can provide access to comprehensive legal and expert witness teams, fully backed by after-the-event (ATE) legal expenses insurance and third party litigation funding.

Crucially, the entire process has been designed to protect IPs from personal liability in litigation as well as from accusations of negligence in failing to explore litigation options – a key factor in persuading IPs to take claims forward. Mark Beaumont of RSL confirms: “RSL is committed to reducing litigation costs through partnerships and sharing of expertise. To this end, the RSL funding package is designed to reduce the share of damages returned to the funders (from as little as 5% of damages) and to recover both conditional fee agreement (CFA) success fees and ATE premiums from defendants”.

It’s a novel take on a long standing problem, and may not be a solution that works in every case – but for many insolvent companies, there is now hope.

Blog: How can a company in liquidation make a claim for swap misselling?

  • Cat MacLean is a partner at MBM Commercial. You can view her profile here.
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