TLW seeks huge pay-out for collapsed SMEs

TLW Solicitors is investigating the cases of thousands of SMEs across the country that may have been mis-sold interest rate hedging products (IRHPs) by their banks in the run-up to the financial crisis.

The creditors of thousands of businesses, many of which have now ceased trading, could potentially receive substantial compensation.

A Financial Conduct Authority (FCA) review in 2013 and internal investigations by nine high street banks lit the touchpaper, with £1.9bn being paid out in redress to date, including £400m to deal with consequential losses.

With over 40,000 IRHPs sold nationally, Newcastle-based TLW Solicitors has been working in conjunction with insolvency practitioners across the UK to identify cases eligible for compensation.

A partner at the firm, Peter McKenna, said: 'There are potentially thousands of businesses that could be affected by this. When we are successful in making claims against the banks for these mis-sales, we have the potential to release funds for creditors owed from those businesses that have ceased trading.

'Not only does this redress work in the interests of the creditors, these funds will be sent to the insolvency practitioners in order that the creditors of the business are paid all or some of the sums that are due. All of which is good news for businesses of all sizes.'

Banks reportedly sold the complex IRHPs to businesses without explaining the risks. When applying for bank loans, thousands of small businesses were offered the products, with many claiming that signing up to IRHPs was mandatory to receive the loan.

With IRHPs designed to provide an insurance against future interest rate rises, many businesses faced thousands of pounds in losses when interest rates tumbled from 2008, something they were not aware of at the outset.

'In some of these cases businesses were urged to take out hedges for far more than they were borrowing, or ones that would last way beyond the terms of their loan,' added McKenna.

'Others reported being sold an IRHP despite their bank capping loan repayments, meaning there was no risk from the impact of an interest rate rise in the first place.

'In a time where it has been a struggle for those individuals involved who have been forced to fold their businesses, these costs may have been a contributing factor.'

TLW is seeking redress from the banks for the losses of its clients, including loss of profits, bank charges, legal and professional expenses, HMRC late payment penalties, and any extra tax charges.

The firm is currently investigating around 300 business sales and expects the entire claims process to be completed within nine months.

Matthew Rogers is an editorial assistant at Solicitors Journal matthew.rogers@solicitorsjournal.co.uk