Farepak-collapse bank defends itself after judge’s criticism

HBOS defended its business dealings, saying it “made entirely reasonable decisions” in connection with Farepak, after Mr Justice Peter Smith accused it of taking a “hardball approach”, as the company’s senior management did everything possible to save the firm.

He said HBOS would provide no more money, was “fully covered” and recovered loans after Farepak collapsed in October 2006, and suggested the bank should “seriously consider” adding to the £2m it put into a distress fund for Farepak’s customers, having itself recouped £10m.

HBOS, now part of Lloyds Banking Group, said it and its staff “acted entirely appropriately” throughout its relationship with Farepak’s parent company, European Home Retail plc which also went into administration.

“It (the bank) made entirely reasonable decisions based on the information available to it at the time,” a spokesman said.

“The bank can confirm that it will not reclaim any costs from the proceeds of the insolvency of the EHR plc.

“On the matter of a contribution to the fund, we provided £2m after Farepak collapsed. The bank will of course consider the judge’s comments but does not agree that it acted inappropriately, as the judge has suggested.”

The judge was speaking at a High Court hearing in London after a Government companies’ watchdog abandoned attempts to penalise former Farepak bosses by having them barred from being company directors. Lawyers representing the Insolvency Service halted litigation after “consideration of evidence” given at a High Court trial which started in London nearly a month ago.

The trial hear that following the collapse, claims by customers and “agents” against Farepak amounted to about £37m.

Mr Justice Smith suggested in court that HBOS sat like “stookies” – a Scottish slang term for plaster casts – by “doing nothing which involves any reduction of their recoveries”.

He said: “It is striking that during the whole of the period it appears, in rough and ready terms, that further investment from the bank of between £3m to £5m would have probably saved the group, but the HBOS was not prepared to make it.” It was perfectly entitled to do what it did, he added.