HBOS to pay £8m into Farepak fund after court rebuke

Mr Justice Peter Smith had pointed the finger at Farepak’s bankers during a hearing at the High Court in London.

HBOS defended its actions last month after the judge accused it of taking a “hardball approach” and suggested the bank should “seriously consider” adding to the £2m it put into a distress fund in 2006 for Farepak’s customers.

HBOS is now part of Lloyds Banking Group, which said in a statement that it has chosen to make an ex-gratia payment of £8m “in the light of recent comments from Mr Justice Smith”.

The Lloyds Banking Group statement said: “We are now working to ensure that this money goes directly to those customers.

“While HBOS acted legally in its dealing with the company, as the judge himself acknowledged, we are mindful that, in acquiring HBOS in 2009, the Group took on not only its legal and financial obligations, but also wider responsibilities.”

The bank said last month that its staff “acted entirely appropriately” with Farepak’s parent company, European Home Retail plc, which also went into administration.

The judge spoke at a 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” was given.

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

Mr Justice Smith said HBOS sat like “stookies” – Scottish slang for plaster casts – by “doing nothing which involves any reduction of their recoveries”.

He told the court: “It of course was perfectly entitled to do what it did and to continue to require the company to collect deposits, knowing full well that those depositors would not get their money back if the companies went into insolvency and knowing full well that those deposits would have benefited the bank alone.”

He added: “This is not a court of morality but I would suggest that HBOS really ought to... seriously consider whether or not they ought to make a further substantial payment to the compensation fund.”

In 2008, the Government pumped billions into a number of banks, including HBOS, to prevent a financial sector collapse.