Lloyds Banking Group has been ordered to lift the lid on its relationship with insolvency practitioners after allegations that conflicts of interest damaged the position of other creditors.
A High Court judge said Lloyds must reveal details of its insolvency agreement with BDO, the accountancy firm, in light of claims that the “impartiality and independence” of insolvency practitioners may have been undermined by their relationship with the bank.
The judgment relates to a case in which Ventra Investments, a property firm, is suing Bank of Scotland, a Lloyds subsidiary, over allegations that it was damaged by mis-sold loans. When Ventra’s properties were sold off, the company also alleges that administrative receivers from BDO were “effectively under the control” of the bank and therefore unduly favoured the lender.
According to court papers, Ventra’s liquidators claim that BDO’s position on the Lloyds “panel”, essentially a preferred status enjoyed by certain firms who win regular work from the bank, meant that it was unlikely to sue the lender should legal issues come to light.
As such, BDO receivers “could not reasonably justify their appointments because they lacked (or, alternatively, there was a reasonable perception that they lacked) the requisite impartiality and independence”, Ventra claimed.
The case will bring renewed scrutiny to whether relationships between lenders and accountancy firms give rise to conflicts of interest when companies go bust. Insolvency practitioners are legally obliged to act in the best interests of creditors as a whole. An unwillingness legally to challenge wrongdoing by a creditor could be an obstacle to that.
Lloyds has been ordered by the court to disclose the panel agreement through which BDO undertakes insolvency work for it. According to a judgment in the civil case, Richard Salter, deputy judge of the High Court, said the documents are “likely to be relevant”.
Ventra claims that throughout the period of the receivership, which began in 2011, BDO “continued . . . to seek, take and follow instructions from [Lloyds] in relation to all strategic decisions”.
A Lloyds spokesman said: “The group does not impose any restrictions on pursuing claims against the group or any other parties when appointing insolvency professionals.”
However, an email in 2015 from a senior BDO partner in an unrelated dispute suggested that its legal options were influenced by its relationship with major banks. The email reads: “If it came to a case where litigation is appropriate, we would have to decline to act given our panel status with all major banks and thus our perceived or actual conflict of interest.”
A spokeswoman for BDO, which is not a party to the litigation, said: “Our insolvency practitioners are regulated by the relevant professional bodies and have full regard to their professional obligations, including the requirements of independence.” Lloyds added that Ventra’s legal claim was “without merit”.
