Sunday 29 June 2014

SME BANKING: TOWARDS A NEW DYSTOPIA

Why The SME Lending Landscape Is A Scary Place To Be At The Moment...

 https://www.youtube.com/watch?v=kRBCZxtJZsA#t=12

Thousands of businesses are being forced to sell assets, being pushed into administration or locked into punishing financial lending relationships - yet there appears to be no credible check in place to tackle such behaviour.
Berg's banking report digs deeper into what has been happening in UK business banking and asks what's happened, why and what businesses can do next;
 •   Understanding the FCA Review: why the Courts are the only option left for many businesses
•    Who is investigating the banks?
•    What evidence has been submitted to the Treasury Select Committee SME Lending Enquiry?

•    Case studies & insights from SMEs
 •    From mis-sold swaps to abuse of property assets and beyond; unravelling the next potential banking scandal
•    Find out what options are available to you if you find you've been affected

"Openness and transparency are the bedfellows of better SME banking and it is our hope that the issues raised in this report will paint a more accurate picture of the current SME banking landscape than that which is currently portrayed in the banks' own figures and testimonies"
Alison Loveday, Managing Partner
BERG -BANKING REPORT

Monday 23 June 2014

Asset-based finance ordered to clean up its act


  • Andrew Tyrie says self-regulation is threatened Paul Rogers/The Times
Lenders that provide £18 billion to small businesses have been told to “clean up their act” or face tighter controls amid claims about controversial fees and abuses of insolvency.

The unregulated asset-based finance industry, which lends to more than 40,000 businesses in Britain and Ireland, is facing increased scrutiny.

Insolvency experts and a campaign group allege that some independent lenders secretly try to sign up businesses likely to go bust, or even that they engineer the insolvency of their clients, in order to profit from their collapse at the expense of the taxpayer and other creditors.

The sector’s trade body, the Asset Based Finance Association (ABFA), launched a new approach to self-regulation last year to tackle perceived problems.  However, MPs have told the group that further “fundamental” reform is required if formal regulation is to be avoided.

ABFA’s members lend to small businesses against their assets, typically advancing money against invoices by taking security over companies’ debtor books.
The sector is being looked at as part of a Treasury Select Committee inquiry into lending after complaints from small companies that they have nowhere to turn if something goes wrong with their loan.
There is also concern that so-called “termination fees” for clients that enter administration are being abused. These fees are ostensibly to cover the risk of a client leaving before the end of their contract but are charged when a client goes bust, often when the lender appoints an administrator. The fees can dwarf the total amount lent.

Geoff Swire, an insolvency expert, has compiled data for The Times which indicates that in the first five months of 2014, more than 10 per cent of administrations involving asset-based financiers saw businesses going into administration less than 60 days after they first agreed to work with a lender. Contracts tend to last at least a year.

ABFA produced a new code of conduct and dispute resolution service last year, but MPs are worried that the industry is not doing enough to tackle the abuse of termination fees, and that since ABFA is a voluntary membership organisation, not all of the industry is covered by the code.  ABFA says it is limited in how proscriptive it can be over the use of termination fees by competition law.

Andrew Tyrie, the Treasury Select Committee chairman, said: “Quite a lot of movement is needed or [this is] going to be one of those cases where self- regulation hasn’t worked”.

ABFA said: “We will consider any recommendations made by the committee very carefully.”
Brooks Newmark, Conservative MP for Braintree, said that while he accepted that most of the industry was reputable, a small group of rogue lenders was “poisoning the well”.

“If ABFA and its members do not clean up their act . . . I will be calling for much tougher regulation from the outside. [The industry] has got to deal with the incredibly bad practices destroying some perfectly healthy businesses.”

The ABFA spokesman added: “We are pleased that the Committee recognises the important contribution the industry makes to the UK economy and the excellent practice that is the norm. It is in the interests of the industry to address instances where standards have not been met.”

Brian Moore, the chairman of the Campaign for Regulation of Asset Based Lending, said: “We want small businesses to be able to use asset-based lending with confidence. That won’t happen while the industry remains unregulated and while small companies have nowhere to turn when powerful lenders take advantage of them and their creditors.”

http://www.thetimes.co.uk/tto/business/industries/banking/article4126960.ece

Thursday 19 June 2014

Shadow Directors - a lender being overly involved in the management of their customer’s affairs - sound familiar?


Shadow Directors – I am not a director of the company, so why would I have any liability as one? Why does it matter that I have influence over how the company is run?

Admin: One recurring theme is coming across in case after case - that is the use of 'Shadow 'Directors' by factoring companies - this we believe will allow you to attack them to protect your self!

You could be a “shadow director”. This is someone in accordance with whose directions or instructions the directors of the company are accustomed to act.
Examples of when the courts have found someone to be a shadow director include the following:
    • a management consultant appointed by a shareholder to assist in a corporate recovery plan;
    • a shareholder in a joint venture who has dictated the actions of the company but not appointed a member to the board; and
    • a lender being overly involved in the management of their customer’s affairs.
Despite the name, a shadow director does not need to be someone who “is lurking in the shadows” and behind the scenes. They can be classed as a shadow director if they are involved in the company’s management and decision making.

The significance of being a shadow director is that such a person has the same responsibilities as a director. There are statutory duties that they need to abide by, including exercising reasonable care and skill, avoiding conflicts of interest and declaring their interest in transactions.

If the company enters into insolvency, a liquidator can pursue actions against the shadow director such as misconduct in the course of winding up. A shadow director can also be subject to a disqualification order, prohibiting him from being a director of any company.

Solutions

Whether someone is a shadow director or not depends on their specific circumstances.

It is best to avoid making or influencing major decisions at board level or exercising any veto powers. In addition if a person controls the financial activities of a company that increases the risk of being classed as a shadow director.

What to do now?

You should carefully consider whether you could be a shadow director. Shadow directorships typically arise when instructions are given to the board; when a parent company gives instructions to the directors of its subsidiaries; or when an investor has a right under the investment agreement to appoint a representative to a board and this representative is influential. However, this list is by no means exhaustive.

A non-director in an influential position over a company should think about how that company’s board goes about making major decisions. They should ensure that they are giving advice as opposed to instructions, and that the board exercises independent judgment when reaching those decisions. Board minutes should show you as “in attendance” rather than present. It is prudent to keep a copy of such minutes.

If, however it becomes clear that you are a shadow director you should insist on being covered by all appropriate insurances in order to protect yourself.

Wednesday 11 June 2014

Chairman of ABFA did the campaign proud for reasons why Regulation of Asset Based Lending is the only option at the Treasury Select committee

If you were unable to watch the Treasury Select committee live, the evidence is fascinating.

Martin Morrin, Chairman of ABFA tried so hard to defend the indefensible behaviour of ABFA members.

The Members of the Committee were so well informed over the issues that are destroying solvent companies in their constituencies.

Please view from 11:00

http://www.parliamentlive.tv/Main/Player.aspx?meetingId=15491