Order. Unusually, the hon. Member for South-East Cambridgeshire (Mr. Paice) and the Minister have agreed that a number of other speakers can participate. The hon. Members whose names I have and whom I will allow to speak are the hon. Members for Arundel and South Downs (Nick Herbert), for Westbury (Dr. Murrison) and for Wantage (Mr. Vaizey). Any other hon. Members who want to speak will have to do so in an intervention because we really must leave the Minister time to respond to the comments that are made. I am sure that right hon. and hon. Members will be aware that any individuals about whom they make comments will not have any redress, because of the absolute privilege that exists in this Chamber.
Thank you very much, Mr. Taylor. I am grateful for the opportunity to raise this issue. I am also grateful to my many right hon. and hon. Friends who have joined me. As you rightly said, it will be a challenge to get everyone in in a 30-minute debate, so I will move swiftly on to the meat of the issue.
The debate revolves around a number of businesses whose affairs were handled by the Reading office of HBOS, under the management of a Mr. Lynden Scourfield, until early 2007. The issue was the subject of a BBC investigation for “File on 4”, which was broadcast on Tuesday 26 May.
Let me say that this is not about Government policy, and I have had a brief conversation with the Minister. There is evidence not only that the bank’s own regulatory controls failed, but that the Financial Services Authority should have been informed. In at least some cases, there is evidence to justify criminal investigations. The objective of the debate is to persuade the Minister to undertake to present the issue to the regulatory authorities for a full and exhaustive examination.
The issue was first raised with me by my constituents Mr. and Mrs. Turner, but it soon became obvious that theirs was just one of many businesses in the same position, and some of those other businesses are represented by colleagues here today. My remarks will deal partially with the Turners, but I have further evidence to present to impress the seriousness of the issue on hon. Members.
Before I do, however, I want to make two preliminary points. The first is the point that you have just made, Mr. Taylor. This is the first time in my 22 years as a Member of the House that I have intentionally used parliamentary privilege to raise an issue, and I certainly do not intend to abuse that right. Secondly, I do not pretend to know the financial details of my constituents’ business or any other business, or the business competence of any of those involved, but the issues that I want to raise go beyond that. As I shall show, Lynden Scourfield was responsible for making what may or may not have been poor financial positions into impossible ones, and in doing so probably enriched himself and others.
In July 2003, the Turners’ business, which was called Zenith, had a £50,000 overdraft. The Turners submitted a business plan to HBOS in Cambridge requesting funding of £450,000, of which £160,000 would be under the small firms loan guarantee scheme. In August, the scheme aspect was approved, but HBOS Cambridge referred the overall request to its credit department, which, it transpired, meant moving the request to Reading.
In April 2004, the Turners met Lynden Scourfield, who agreed funding on the condition that Zenith engaged and paid Quayside Corporate Services. As a result, new business plans were submitted requiring more borrowing. By January 2006, the Turners had had enough and asked the bank to stop imposing Quayside on them.
By August 2006, the bank had started proceedings to evict the Turners from their home, which had earlier been provided as security. However, only one month later, in September, Lynden Scourfield agreed to increase their borrowing facility to £856,000. By November 2006, Scourfield told the Turners to fund the business by using corporate credit cards at £12,000 a month, which he would authorise.
On 21 March 2007, the Turners were due to meet Mr. Scourfield in Reading. The meeting was cancelled, and his office told them that he was on indefinite leave but that they would be seen by a new man, who was cutting off all lines of credit to more than 200 of Lynden Scourfield’s customers.
I will not go through all the subsequent events, other than to make two points. First, the eviction proceedings continued, including two court hearings. District Judge Pelly said,
“having heard what I have heard, on any basis it would be grossly inequitable for the warrant to proceed. There must be time for this to be resolved, and on the balance of probability I think once it has been resolved, the Turners will almost certainly have sufficient wherewithal to pay off all these arrears in a reasonable time.”
Secondly, the Turner family were concerned that HBOS had broken the rules of the small firms loan guarantee scheme by using it to pay off existing overdrafts, which is strictly forbidden. That has been referred to the financial ombudsman, who is yet to make a final decision. Since then, other examples of the apparent abuse of the scheme by HBOS have emerged from other businesses, all of which have expressed no confidence in the independence of the financial ombudsman service.
I think that there is a common cause. A constituent of mine was involved with a business called Chauffair. In 2002, a rescue package with business men to make the company work was stopped by HBOS and Mr. Scourfield. Quayside was brought in. Two companies and five years later, the original debt of about £14 million that was covered by assets has risen to £113 million and the money has disappeared.
I am grateful to my hon. Friend. He is quoting just one of a number of similar examples.
In March 2008, the Turners approached me and I started to correspond with HBOS. By then, it was apparent that all these other businesses were involved. By December 2008, five colleagues and I wrote to Lord Stevenson, who was then the chairman of HBOS. The key part of our letter stated:
“All of our constituents were granted increased loans by Mr Lynden Scourfield whilst he was an employee of HBOS; an employment which was apparently terminated abruptly.
All loans were granted on the basis that the businesses employed Quayside Corporate Services as advisers for substantial fees which clearly could be ill afforded.
In most if not all cases borrowing was increased considerably as a result of Quayside’s recommendation and approved by Mr. Scourfield.
We take the view that there is more than coincidence involved here and that our constituents have been ill-served by your bank.”
We sought a meeting with Lord Stevenson.
After the changes in HBOS at the end of last year, we met Mr. Philip Grant, the chief operating officer of Bank of Scotland Corporate. In a letter to me and my colleagues dated 18 February this year, he stated that the bank
“does not agree with the implications drawn in the specific points that you and your colleagues have raised.”
Pertinently, he stated:
“In certain instances, Mr Scourfield was instrumental in the appointment of Quayside Corporate Services…as consultants to the entities in which the constituents were involved. So far as I am aware, there is no evidence that anybody at the bank knew, at that time,”—
I stress those words—
“that the reputation of Quayside (or of individuals within Quayside) was, in any way, questionable.
In early 2007, the bank identified issues concerning Mr Scourfield’s approach to lending. As pointed out above, the Bank was more supportive than it should have been in responding to requests for increased facilities from some of the customers in question. After Mr Scourfield had been suspended from duty on account of these matters, he resigned in April 2007.
Following communication between the Bank and the FSA, improved procedures were implemented to ensure that there was no recurrence of those practices. To be clear, these procedures were designed to ensure that, in future, the Bank did not lend more than it should to its customers.
Following Mr Scourfield’s departure, the Bank carried out an extensive internal review and concluded that there was a lack of evidence of direct personal benefit on the part of Mr Scourfield from his relationship with Quayside.”
I am grateful to my hon. Friend for the tremendous lead he has given to colleagues in this matter. Does he agree that in the last point, the gradual sweeping of dirt under the carpet can be heard? The relationship between Mr. Scourfield and Quayside was not healthy. This man was an employee of HBOS. Remnant Media Ltd in my constituency has suffered from the bad decisions and I expect the bank to stand up to the problem.
I am grateful to my hon. Friend, and I agree with his conclusion. I, and my colleagues, have stressed to HBOS and Mr. Grant that whether or not Mr. Scourfield was acting properly, he was acting in the name of the bank, and the fact is, therefore, that the bank must accept responsibility for those actions. In the letter to which I referred, Mr. Grant went on to make specific comments and, in some cases, some “without prejudice” offers on the five cases that we had represented. In the case of my constituents—the Turners—the offer was, at that stage, very small. My colleagues and I rejected those offers and returned to the main issues. On 18 March, Mr. Grant substantially increased the offer to the Turners, dismissed one of the other cases and made a small offer for one more. However, there was a complete refusal to accept any criticism of the bank. Subsequently, a number of the businesses met and agreed to reject all the offers by HBOS, because they wanted acceptance by the bank of the apparent malpractice and the full investigation that we seek.
That brings me to the present situation, excluding last week’s radio programme. Since then, of course, more cases have come to light. Mr Karl Capp of Orchard Networks raised the same issues as the Turners about the small firms loan guarantee. As it happens, another of my constituents, called Mark Turner—no relation, as I understand it—has told me of a similar story: he was required by HBOS to engage Quayside Leisure at £6,000 a month. The business still went into administration and—unbelievably—the bank then told the administrators to employ Quayside to run the business. I have also received correspondence from a solicitor representing a Mr. Clive Collins. This is very important because it comes from a solicitor. He wrote:
“I am presently acting for an individual, Clive Collins, whose business was taken away from him by HBOS and placed in the hands of Quayside. Quayside invoiced vast sums for doing very little work. They effectively asset-stripped the company until it could no longer trade. The business's main asset, a subsidiary company, was then sold to a different company owned by the directors of Quayside for £100,000, despite much higher offers made by independent third parties.”
And he continues in a similar vain.
Finally, I want to refer to a company called Seoul Nassau, which, I am told, went down for £34 million owed to HBOS. It is alleged by someone who worked for the company’s owner, in a letter that we received, that the owner’s personal assistant would
“deliver a briefcase full of cash to Mr. Scourfield to assist the loan”.
This allegation follows other stories that Mr. Scourfield was benefiting from being, as the bank said, “overly supportive”, including, I am afraid, lurid stories of prostitutes being paid for from the funds of Quayside clients. I am well aware that a number of these allegations cannot be substantiated to any great degree, but to be clear I have not repeated many further allegations for which I could find no evidence at all, but which might still have some substance.
I have received personal assurances from somebody whom I know very well and trust about the integrity of Mr. David Mills, who is the owner of Quayside, and who, in some cases, was the nominee director of HBOS. I have also seen the correspondence between Mr. Mills and the BBC regarding these various allegations. I shall not go through all the points that he made, but I fear that his record of the situation does not tally with the information that the BBC has obtained and which refutes some of his suggestions. In particular, I want to quote from Mr. Mills’ e-mail to the BBC:
“Lynden Scourfield fell ill at the outset of 2006 and resigned from the bank some months afterwards—he was not fired as the Turners have repeatedly alleged”.
As I have said, that does not conform with the bank’s own statement that Mr. Scourfield
“had been suspended from duty on account of these matters”,
and that he resigned while he was suspended.
My basic contention is that Lynden Scourfield lent considerable sums to more than 200 businesses and that in many, if not most, cases he required the businesses to engage Quayside as advisers or turnaround specialists. In many cases, he also required that a Quayside appointee be placed on the board. Then Quayside would advise significant increases in borrowing, which Scourfield authorised and in which the business owners acquiesced, as, after all, that was the advice of the bank’s appointees. Subsequently, many of those businesses went down for far more than if Quayside had not been involved, and the assets of the businesses were acquired in one way or another by others involved with Quayside.
Certain important questions arise from all those points. First, will the Government investigate the operation of the small firms loan guarantee scheme to ensure that banks are not abusing it? Why was Lynden Scourfield allowed to keep lending money to businesses that were already overborrowed, especially if, as we believe, he was lending sums considerably in excess of his authorised limit? What happened to the bank’s internal procedures?
Given the allegations about Mr. Scourfield and the charges that he was bribed, why were the police not informed, especially in the light of the bank comment that refers only to a lack of evidence? Why were the regulatory authorities not brought into the investigation by HBOS, as I believe they were required to be? Why was HBOS the only bank not to work with Institute for Turnaround specialists, given that Quayside, almost unbelievably, was not a member of the institute? If everything was satisfactory, why did HBOS stop using Quayside?
Finally, should there not be clear rules that if a consultancy is involved with a business that goes down, no company or individual involved with the consultancy should then benefit by purchasing the company or its assets, which clearly appears to have happened?
I hope that this debate demonstrates to the Minister that he should invite the regulatory authorities to investigate the whole matter thoroughly. The public now own most of HBOS, and, although there were many reasons for its decline, it seems clear to me that some of its losses, probably hundreds of millions, stemmed from malpractice at the Reading office. All of us are taxpayers, and we are justified in demanding to know how that happened, why it was allowed to happen and whether any criminality was involved. If we have a full inquiry that proves all my statements, allegations and concerns groundless, I will, of course, accept the finding and withdraw them. However, on the evidence that I have seen, I believe that an inquiry would find otherwise.
Thank you, Mr. Taylor.
I congratulate my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice) on the leadership that he has shown in this matter. My interest derives from my constituent Mr. Andrew Reade who has been discommoded in connection with his business Keenets by the gross failure in governance at HBOS and by its associate Quayside in the manner that has already been so well described.
It is simply not credible to characterise Reading-based official Lynden Scourfield as some autonomous rogue banker and leave the matter at that. Loans of that order must have been sanctioned and remitted at a much higher level—in this case, at HBOS headquarters in Edinburgh by Mr. Scourfield’s immediate superior at least.
Lloyds Banking Group has pretty well dismissed all criticism and played lip service to cleaning up the act of its acquisition HBOS. That simply will not do. It is unedifying in the current climate of distrust in greedy, cynical bankers for Lloyds Banking Group to behave in that way.
It is evident that Mr. Lynden Scourfield had a close relationship with Quayside’s Mr. Bancroft and Mr. Mills. One wonders at that and also at the tales of the high life apparently lived by key players in the tragedy that were revealed in last week’s “File on 4” documentary. There can be little doubt that, at the behest of Quayside and its expensively imposed but seemingly unsuccessful turnaround directors, many struggling companies were obliged to extend their loans, ultimately causing ruinous losses not just for them but for a bank that is now in receipt of a large sum of public money.
What remains opaque is the extent to which those now liquidated companies were acquired by undertakings associated with Quayside. From his Keenets experience, my constituent suggests that the Quayside-associated companies Seoul Nassau and Speyside should be explored by the Financial Services Authority in that regard. Given the apparent murkiness of the situation, there is every reason for the FSA to undertake a comprehensive investigation, and I urge the Minister to use his good offices to ensure that that happens.
I am here because of my concern about the actions of HBOS and the company that it engaged. I am here because of my constituent Joanne Freer. Her company, Cotton Bottoms, was affected when it sought a loan from HBOS of £400,000 in 2003. The money came with strings: the company had to engage Quayside Corporate Services and it had to make Michael Bancroft a non-executive director and a member of the board.
A series of events then occurred. Mr. Bancroft charged exorbitant fees, which were paid in preference to supplier payments; that damaged the company’s relationship with those suppliers. He also enforced redundancies against the wishes of my constituent. Finally, in a fait accompli, he pushed my constituent into selling the business through his bullying behaviour. In the end, she had to agree not to take legal action against HBOS or Michael Bancroft, or else she would have lost everything.
The bank has not explained satisfactorily why Lynden Scourfield, who authorised the loans and enforced the appointment, has left the bank. It should do so. The bank itself has clearly suffered serious losses, but so have individual businesses. Serious allegations, as set out by my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice), need to be investigated. Those allegations concern the agreement that appears to have been made between Quayside Corporate Services and Lynden Scourfield at HBOS, which allowed them to take control of highly geared vulnerable businesses in order to divide the board and seize control, then submitting false business plans to facilitate further borrowing, channelled through Quayside Corporate Services with fees, only to collapse the business months or years later to the detriment of the owners, shareholders and creditors—and of HBOS itself.
I urge the Minister to do all that he can to ensure that the authorities properly investigate what I regard as a most serious matter.
I speak on behalf of my constituent, Mr. Justin Riggs, a poultry farmer. He has travelled here from Stanford in the Vale today to hear our debate in person.
Mr. Riggs—with hindsight, most unfortunately—took out a £375,000 loan with HBOS in 2004. He was another of those business men who ended up dealing with Lynden Scourfield and the Reading office. The bank called in the loan in August 2007. By then, the loan had grown to £382,000, despite the fact that Mr. Riggs had paid the bank a total of £231,000 in interest, charges and other fees.
Mr. Scourfield behaved in a similar fashion: he forced Mr. Riggs to engage a business adviser—in this case, a Mr. Crawshaw—who advised him to sell not only some of his land, from which he gained income, but some of his chicken houses. As a result of that advice, which Mr. Riggs felt inclined to follow, he saw a 25 per cent. drop in income. To add insult to injury, when the bank came to foreclose on Mr. Riggs, it levied charges of £40,000.
The bank has conceded, if not in principle at least morally, that it should not have levied those charges, and has agreed to waive them. However, it is astonishing, not least to my colleagues, that it should have taken a legalistic view of its proceedings, not recognising that there is a pattern in the way that Mr. Scourfield engaged with numerous people—including Mr. Karl Capp, who was mentioned by my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice) and is another of my constituents, and who had trouble with the small firms loan guarantee scheme.
Mr. Scourfield has taken businesses and loaded them with loans, charges and consultancy fees. It is now up to HBOS to come to the table, following a moral course rather than a legalistic one, and put those people back in the position that they would have been in before dealing with HBOS.
I congratulate the hon. Member for South-East Cambridgeshire (Mr. Paice) on securing today’s debate, and I thank him for his contribution. He raised particular concerns about the practices of Halifax Bank of Scotland at its Reading office, and particularly about one individual and a company that provide advisory support.
It is not appropriate for me to intervene directly in individual cases or disputes, not least once legal proceedings have been started. Legal disputes are for the courts to determine. That said, I am of course deeply concerned to hear the allegations that have been made.
In the difficult times that we are experiencing, it is vital that banks do all they reasonably can to support corporate customers who are in financial difficulty and to work with them to manage and resolve their financial difficulties. Evidently, however, there are other issues at stake. It is clear that a number of firms that were handled by the Reading office failed, and that the situation was made worse by a breach of approved lending limits. I shall return to the general issue of inappropriate risk-taking by banks in a moment, if I have time.
I have been advised that the FSA has investigated the Reading office case and the internal breach of controls that occurred at HBOS. The control systems have been changed and strengthened, and HBOS has written off a considerable amount, although one or two cases remain in dispute. I have also been advised that the FSA continues to monitor HBOS, that it considers carefully any allegations of fraud by an authorised firm, and that it works closely with other law enforcement agencies to protect consumers from financial crime. I add, however, that it is important that any victim of an alleged fraud should report the matter to his or her local police force.
Following the hon. Gentleman’s representations, I shall write to the FSA, enclosing a transcript of this debate, to seek assurance that all appropriate consideration is given to these matters. I shall also ask it to write to me and the hon. Gentleman to outline the FSA’s role in dealing with this affair and the approach that it takes when there may have been financial crime. I also undertake to write to other hon. Members who have attended the debate.
Is the Minister prepared to add the documentation in which many people have set out quite clearly what has happened, particularly as some of them have been severely hurt? The lady whom I have mentioned is not homeless, but is living on benefits, has lost her home and is now a single parent.
I am happy to pass on any documentation to the FSA that will help it fully to assess and examine this matter.
The hon. Member for South-East Cambridgeshire spoke about the use of public funds in the Government’s loan guarantee scheme. I understand that HBOS has not made a claim to the Government under the terms of the scheme, so no Government funds are involved. The scheme, which is being replaced by the enterprise finance guarantee, is delivered by a range of approved lenders who are responsible for all decisions on individual loans. Any allegations of misuse by lenders are obviously of concern to the Department for Business, Enterprise and Regulatory Reform. Its partner, Capital for Enterprise Ltd, manages the scheme. CfEL examines allegations as part of a programme of oversight, and it may require the lender to modify its procedures for the scheme if anything inappropriate is found. I am assured that relevant procedures are in place.
The debate has raised issues and allegations that require full examination of the evidence, and I am happy to pass on any evidence that is not already available to the FSA. If appropriate, I am also happy for the FSA to refer matters to the police. The debate has also touched on wider issues of corporate governance and regulation in banks, particularly in relation to risk-taking. The boards of banks must ensure that they maintain systems and controls that are appropriate to their businesses and in line with relevant regulations. Their nature depends on the scale and complexity of the business, on its structure and the physical location of its operations, and on the degree of risk associated with them. The rules require firms to carry out regular reviews of their control systems, and to have clear reporting lines and management responsibilities. In particular, the duties of individuals and departments should be segregated to reduce the opportunity for financial crime or rule breaches.
Clearly, lessons have been learned from this case, and I am grateful to the hon. Member for South-East Cambridgeshire for raising these issues. We must all work together on the wider issues to ensure that we learn lessons. The hon. Gentleman will be aware of the Turner review and its report and recommendations. The Government are committed to taking forward the issues that Turner identified. We must also consider where improvements can be made more generally to banks’ corporate business, but in a way that supports the flow of credit to consumers and businesses. I shall ensure that the FSA writes to the hon. Gentleman, and we will write to other hon. Members when we have some responses.