I beg to move,
That this House has considered the regulatory role of the Royal Institution of Chartered Surveyors in Law of Property Act receiverships.
It is a pleasure to serve under your chairmanship today, Mr Hollobone. The Royal Institution of Chartered Surveyors is the professional body that accredits some 125,000 professionals in the land, property and construction sectors worldwide. The RICS banner slogan is “Confidence through professional standards”, and a mission statement proudly announces:
“We regulate and promote the profession, maintain the highest educational and professional standards, protect clients and consumers via a strict code of ethics, and provide impartial advice and guidance.”
That statement embodies the key principle that although a professional body has responsibilities to its members, such as setting standards, training and interpretation of legislation, its overriding responsibility is to the public at large—its members’ clients and customers—to provide assurance and confidence that RICS members are behaving entirely professionally to those third parties.
Self-regulation, which is what that represents, leads RICS to its immediate conflict of interest. On the one hand, it represents the interests of members, who fund the organisation; on the other hand, it has an overriding responsibility to the public at large. The issue becomes how RICS manages that conflict and whether RICS is achieving the appropriate balance in judging the actions of its members. That is the crux of what today’s debate is about.
RICS, naturally, claims that everything is in order. On its website it states:
“We assure competence and enhance our professionals’ status by providing confidence to consumers and markets”,
“We are proud of our reputation and we guard it fiercely, so clients who work with an RICS registered professional can have confidence in the quality and ethics of the services they receive.”
No self-regulator will ever say otherwise, but the question is whether RICS is delivering on that commitment in practice. Unfortunately, in the experience of my constituent Mr Shabir and many others, the answer is emphatically no.
RICS has entirely misdirected itself in Mr Shabir’s case and should issue a revised decision that accords with RICS’s mission statement and the facts of his case. A further concern to me is that public pronouncements by RICS, specifically those made to the Select Committee on Business, Innovation and Skills under the chairmanship of my hon. Friend the Member for West Bromwich West (Mr Bailey), seem wholly virtuous and bear no relationship to RICS’s interpretation of its own standards when it responds to complaints such as those of Mr Shabir.
Turning to the Law of Property Act 1925, it is unfortunate that although the LPA or the relevant mortgage deed provides for a lender to appoint a receiver, section 109(2) of the Act defines the receiver as the “agent” of the borrower. That creates an immediate conflict, since a bank or other lender, when faced with claims of unreasonable behaviour on behalf of the receiver whom it has appointed and whose remuneration it has agreed, will shelter behind the fact that the receiver acts as the agent of the borrower. Most commentators acknowledge, however, that that is not the reality. The receiver’s first and often only loyalty is to his appointer, and the impecuniosity of the borrower, often as a consequence of the very actions of the bank or other lender, will deny the borrower the ability to defend himself. In such circumstances—for example, when a RICS member is acting in, or in association with, a receivership capacity—it is essential for RICS to set the bar for acceptable behaviour at the very highest possible standard.
On 16 September 2015, I led a debate in Westminster Hall about the case of Mr Shabir and that of Alun Richards, a constituent of my hon. Friend the Member for Ogmore (Chris Elmore). I will not repeat the details of the case, but in summary, as a consequence of the financial crash in 2007-08, Lloyds bank took the opportunity to reassess its relationship with customers who were borrowing large sums of money at low rates of interest above base. Those customers were known as fine margin customers. Faced with the significantly increased costs of funds in the money markets, Lloyds sought to improve its position by eliminating fine margin customers from its portfolio. The mechanism to achieve that was systematic down-valuation of a customer’s property in order to engineer a shortfall in the key loan-to-value ratio. Once that term was breached, Lloyds could pass the customer in question to the Bristol recoveries department—from which it was confirmed there was no escape—and resist all proposals for restructuring.
The Bristol recoveries department was in effect the graveyard of Lloyds, because no business came out of it alive. It has become infamous as the centre of the malpractice and it has dealt with cases from all over the country. Once a business was with the recoveries department, receivers were appointed. They then eliminated the customer and met Lloyds’s objective. Any shortfall for Lloyds was met by the Government under the taxpayer bailout arrangement. To add credibility to that manoeuvre, Lloyds needed the support of a professional firm with apparent independence and full RICS endorsement. In Mr Shabir’s case the firm was Alder King, which had at one time been owned by Lloyds. The advantages to Alder King were all too obvious: a significant source of extremely profitable consultancy and receivership work, much of which was unnecessary and would not normally have arisen were it not for the position that had been artificially created.
I congratulate my hon. Friend on securing the debate. I give her my full support. What she is presenting is the tip of the iceberg. I cannot name a constituent of mine in a similar case because he wishes to remain anonymous, owing to confidentiality agreements negotiated around the malpractice. Suffice to say, he is a victim of exactly the same kind of malpractice by Lloyds as she is describing.
My hon. Friend is right. We have the names of people who have been affected, but many cannot identify themselves because of gagging agreements in the settlement of disputes.
As far as Mr Shabir and others similarly affected are concerned, the Lloyds manoeuvre was not simply an esoteric exercise. The practices employed have destroyed perfectly viable businesses and sources of livelihood for their owners—Mr Shabir had a business worth about £10 million. Recognition of such practices is widespread, including in the Tomlinson report and the financial press, and there is much sympathy for those who have suffered financial loss. Redress, however, remains elusive, not least as a consequence of the prohibitive cost of litigation. This really is a David against Goliath situation.
At a time when RICS’s support might be decisive, it remains in denial about the malpractice that lies at the heart of this matter. What, therefore, was the malpractice? Mr Jonathan Miles, a partner in Alder King, was embedded in the Lloyds recovery department in Bristol. He was given a Lloyds email address, telephone and business card, and his true identity as a partner in Alder King was concealed. Mr Julian Smith, another Alder King partner, was not only instructed to do the valuation of Mr Shabir’s business—in reality, the down-valuation by Lloyds—but appointed receiver over his property. Mr Smith had significant involvement with Lloyds and he, too, was provided with a Lloyds email address and had access to confidential customer data. Disturbingly, RICS has confirmed that during that whole period Mr Smith was on a part-time secondment to Lloyds. That is about as obvious a conflict of interest as we will ever see. Mr Smith was acting as judge, jury and executioner.
The terms of those involvements—in particular Mr Miles’s full-time secondment, which lasted several years—were to act in an executive capacity within Lloyds. The relevant financial arrangements have never been disclosed, which raises doubts about whether they even existed. In that executive capacity, Mr Miles was threatening customers, making receivership appointments to his own firm and signing property sale completion documents as a senior authorised Lloyds official. The valuations produced by Alder King were up to 50% less than comparable valuations produced by valuers with a national profile. Furthermore, once appointed, Mr Smith acted in blatant disregard of Mr Shabir’s interests. Mr Shabir has been left with arrears of rates, service charges and utilities’ services, some of which have become the subject of county court judgments against him. An attempt was even made by Alder King to sell one property from Mr Shabir’s portfolio to Mr Julian Smith’s personal assistant at Alder King.
It goes without saying that each of those matters appears to raise serious concerns when placed in the context of RICS’s literature and professional standards. Naturally, therefore, Mr Shabir made a complaint to RICS. That was on 29 June 2011. It drew an extraordinarily disappointing response, which contained a list of reasons for doing nothing and, in particular, a denial that the issue had anything to do with ethics and conduct. A second approach in July 2011 did not even attract the courtesy of a response, and a further approach in April 2014 led to completely inconclusive dialogue for five months. RICS finally agreed to receive a formal presentation on 13 November 2014, but although all the complaints that had been given in were evidenced, three months passed, and in February 2015 RICS concluded in a letter to Mr Shabir that
“there is no evidence of misconduct by Alder King or the members in question”.
The letter also added that the matter could be referred to an independent reviewer—appointed by RICS—to review RICS’s procedures, but not the actual decision.
As might be expected, the issue of conflict of interest features widely in professional standards literature published by RICS. Doing something that secures an unreasonable pecuniary advantage to the detriment of others is so obviously irregular that there is not even any reference to it in that literature. On 4 March 2015, RICS’s public position was defined by Ms Eve Salomon, then chair of RICS Regulation, in evidence to the Business, Innovation and Skills Committee, chaired by my hon. Friend the Member for West Bromwich West, during an inquiry into the regulation and policies of the insolvency sector. Ms Salomon said in her evidence, in response to questions 20 and 21, that
“secondment…is subject to an arm’s-length contractual agreement between the secondee and his or her firm and the employing organisation.”
She went on to say that
“where somebody might be a secondee in a bank…and then subsequently…is appointed as a fixed-charge receiver, that could potentially raise issues of conflicts of interest, but those matters are dealt with by professional codes”.
She also said:
“If we found evidence that, say, a secondee had given advice on the expectation that the matter would be leading into receivership and that that particular chartered surveyor would be appointed as a receiver, then we would see problems.”
Ms Salomon’s colleague at RICS, Mr Graham Stockey, added:
“At that stage, provided it is at arm’s length and the contract that is set up clearly limits the involvement of the secondee, the conflict could be managed. We look very closely at what the terms of the contract would be and what the terms of the appointment are, and it is up to the firm to be able to show RICS Regulation that there is no conflict. This is something that we look at really closely.”
His comments were endorsed in the evidence session by Mr Julian Healey, who is the chief executive of NARA—the Association of Property and Fixed Charge Receivers. In response to question 19, he said:
“Yes, there is conflict between a fixed-charge receiver going into a bank and advising on matters and then saying, ‘I have identified this as a distressed property. What a good idea. I’”—
or my firm—
“‘shall now go and act as fixed-charge receiver’.”
Those comments were also endorsed by Mr Phillip Sykes of R3, who said in response to question 85 that it would represent an unacceptable conflict of interest if that secondee individual or his firm
“was then to go on and take the insolvency appointment…In my experience, certainly, the banks take enormous care to ensure that if a secondee is working on a particular case then their firm will have no part in any enforcement proceedings.”
From reading that evidence, which was given publicly, it is particularly disappointing that when I wrote to the director of regulation at RICS, Mr Luay al-Khatib, on 15 December last year, he sought to explain away Ms Salomon’s comments to the Select Committee as being
“of a general nature to assist the Committee and not comments made in relation to Mr Shabir’s case”.
It is of fundamental concern to me that Mr al-Khatib declares himself to be satisfied with the decision that RICS made when he knows that there are no agreements governing the terms of secondments that have lasted for five years, that the secondments were without charge to the bank, that there was no escape from the recoveries department—the excuse offered by RICS that there was no certainty of a receivership appointment following Alder King’s advice or valuations is therefore simply nonsense—that the issue of under-valuation has not been addressed and that there was no tendering for receivership work, as cases on which Mr Miles worked were invariably passed to Alder King.
Having attempted since late 2015 to get Lloyds, Alder King and RICS each to meet with me and my constituent to address the issues I raised in my debate in September 2015, I have come to the conclusion that RICS is failing to deliver an acceptable level of regulation. Worse than that, it is doggedly maintaining in its public pronouncements that it is subscribing to the highest possible principles and standards, whereas in reality it is condoning practices that are untenable and universally condemned by other professional bodies. Whatever the reasons for its actions, be they the extent of the practices, the importance of the members concerned, compensation considerations or others, RICS is completely undermining a principal basis for its existence, namely the maintenance of public confidence in a professional body. I recognise that LPA relationships bring their own difficulties, but on the evidence of Mr Shabir and others who have been affected by practices similar to those I have outlined, regulation has failed in the one area where it was most needed.
In March 2017, RICS published on its website a professional statement entitled “Conflicts of Interests”, together with some commentary notes. Obviously there is merit in refreshing professional standards from time to time, but the problem is that RICS is not using its statements or standards when dealing with members who are in breach of those standards. At a meeting held here in Parliament on 15 March 2017, the Thames Valley police and crime commissioner, Mr Anthony Stansfeld, who was responsible for the prosecution of the now convicted bankers behind the HBOS fraud, stated that in his opinion the board of Lloyds bank, which owns HBOS, had been well aware of the fraud since 2009, despite persistently denying it for many years. And here we are again, in my constituent’s case and that of many other small and medium-sized enterprises, dealing with the same Lloyds board, the same owners of HBOS and the same set of individuals: the chairman, Lord Blackwell, and the chief executive, António Horta-Osório.
Mr Shabir’s case has clear parallels with the Reading fraud case. It involves fraudulent activity and then a cover-up. The former chairman of Lloyds, Sir Win Bischoff, wrote to Mr Shabir’s former Welsh Assembly Member on 14 October 2010, completely refuting the allegation that the receivership had been mishandled and specifically saying that there had been no conflict of interest. But he then went on to say that Alder King was Lloyds’s preferred firm of professionals in the south-west. That statement is in itself conflicting. How can the guarantee of receivership work sit alongside Alder King secondments to Lloyds? We know that it sat alongside them very comfortably, because I have a letter from Alder King’s Julian Smith, dated 21 December 2009, to his Alder King boss Jonathan Miles, at his Lloyds bank address, thanking Mr Miles for appointing him as receiver. Sir Win was also sent the letter, but declined to respond. I also have a letter dated 22 May 2014, written by the then Secretary of State for Business, Innovation and Skills, Vince Cable, confirming that he had met Lloyd’s chief executive, Mr Horta-Osório, and discussed Mr Shabir’s case. The chief executive told him that he had “looked into the matter personally”. So the chair and the chief executive of Lloyds knew what was going on and did nothing. That sounds very familiar.
Lloyds has effectively opened up its bank vaults and allowed Alder King to walk right in and help itself. Meanwhile, RICS, supposedly keeping watch, ensures that Alder King has a clean getaway. The financial incentive for Lloyds and Alder King to cover up the fraud is clear, but this dereliction of regulatory duty by RICS, in the face of the most blatant conflict of interest, makes RICS complicit in the fraud itself.
I ask the Minister to address three matters in his response. If RICS is to retain its role in the sector, it should establish which, if any, of its member firms are on bank or lending institution panels and have secondment agreements operating with those lenders. If there are member firms that have such a relationship, does the Minister agree that that should be confirmed in writing to all associated parties before any involvement by those firms in potential receivership cases? Does he agree that RICS must immediately establish with its members, such as Alder King, a system of financial redress for victims of this fraudulent malpractice, including Mr Shabir and other SME owners? The victims should not have to put themselves through the stress and expense of litigation where there is no equality of arms. Since Lloyds has had the principal financial interest in cases such as Mr Shabir’s—Lloyds is still part taxpayer-owned—and has been pulling the strings of RICS members, it should be required to be the major party to that system of financial redress.
The past few weeks have not been good PR for the banking industry, and particularly not for Lloyds. The Reading fraud convictions, the subsequent announcement of yet another £100 million compensation scheme and the launch of a new independent lawyer’s investigation have all made headline news. The scope of that investigation covers the role of three successive chairmen at Lloyds—Bischoff, Blackwell and the chief executive, Mr Horta-Osório—all of whom denied knowledge of the Reading fraud case until it got to court. We know from the release of a leaked internal Lloyds document that those executives knew of the fraud—they even referred to it as fraud—as far back as 2009. Mr Shabir has received the same stonewalling from the same set of individuals.
I conclude by reiterating that banks, regulators and specifically RICS need to clean up their act to restore public confidence and trust. They need to offer full and immediate redress to the victims of their malpractice. The issue is not going to go away, even despite today’s announcement of a general election.
Order. The debate runs until 7.30 pm. Jo Stevens has three minutes to sum up at the end, which means I have to call the Front-Bench spokespeople no later than seven minutes past 7 pm. The Opposition spokesperson and the Minister each have 10 minutes. Three hon. Members are standing from the array of Labour parliamentary talent I see before me. I am going to have a five-minute time limit on speeches so that everybody has equal share, and we will start with Mr Adrian Bailey.
May I say what a pleasure it is to serve under your chairmanship, Mr Hollobone? I will do my very best to keep within the time limit you have outlined.
I congratulate my hon. Friend the Member for Cardiff Central (Jo Stevens) on her doggedness and determination in continually bringing this issue to Parliament and on the lucid and forensic way in which she outlined the issues. I would find it difficult to elaborate in any way on the details of the cases that she has brought to the notice of Members in this and the previous debate.
I also compliment Mr Shabir and—although he is not mentioned in this debate—Mr Richards from the Ogmore constituency, who suffered a similar situation, for their doggedness and resilience in ensuring that this has been brought to the notice of parliamentarians and that the issues are examined in public. Their experience would have defeated lesser people and they deserve commendation for the way that they have campaigned.
As my hon. Friend said, the issues arising from the evidence were examined by the former Select Committee on Business, Innovation and Skills. Unfortunately, the hearing was just before the 2015 general election. Although we took the evidence, we never had the chance to make recommendations. However, the answers that my hon. Friend has referred to from that meeting quite clearly illustrate the vast gap between the public rhetoric of these bodies and the private reality of how they operate. Anybody hearing the particular case studies can only be astounded that a professional body, and representatives of that body, could have acted in such a way, and that there does not appear to have been any legal redress for the way in which they acted, or compensation for the victims of their actions. The wide consensus of opinion about the awfulness of the actions and the terribleness of the experience that the individuals have gone through—let us be clear: it is reflected by many other small businessmen and women up and down the country—raises matters of huge concern.
I would like to highlight one or two issues that the Government must address, the first of which is the gap that seems to exist in the Serious Fraud Office’s threshold for investigation of fraudulent activity. I will not repeat the words of the Solicitor General in the previous debate, but he basically said that investigation was reserved for high-profile and serious cases of fraud and was limited to companies such as GlaxoSmithKline, Tesco and Rolls-Royce. It would appear that we have a Government body that is prepared to act on behalf of big business but not small business.
The Solicitor General went on to say that ActionFraud had been established to ensure reporting. I have looked at ActionFraud; it reminds me a bit of the ill-fated cones hotline that existed in the 1990s, because someone can report something, but absolutely nothing will happen. If anything can happen, that is not made clear to anyone who makes a report.
In conclusion, the issues are of such seriousness, and the way in which the professional organisation has responded to them so inadequate, that the Government must look at some sort of intermediate implementation of action against fraud, to help small as well as big businesses.
I commend my hon. Friend the Member for Cardiff Central (Jo Stevens) for securing the debate. I would like to use the brief time available to raise a constituency case, with the permission of my constituent Mr Graham Stewart.
Mr Stewart has been a builder and developer since 2000. He was encouraged by Lloyds bank to move his account to Lloyds in 2003. He banked with Lloyds over the next decade, in which he developed a substantial property portfolio. His accounts were handled both locally and regionally without any great difficulty until they were moved to the Bristol business support unit. His loans were originally reviewed every two years; that period was shortened by the bank, which added a cost for him each time. In June 2012, he was told that his loan depended on his selling a number of his properties, that the valuation would be carried out by the bank’s own valuers and that his repayments would virtually double. When he complained about bullying, he was told at the end of November 2012 that the loan was to be called in and would have to be repaid in full, despite his not being in arrears at the time.
Mr Stewart was told by the Bristol business support unit that Alder King would be brought in to revalue his properties, which would be sold off to repay the loan. I am advised that, as has been alluded to earlier, staff at Alder King and Lloyds BSU moved seamlessly between the two offices. Alder King valued his properties at £1.1 million, despite a recent revaluation by Lloyds valuers at £1.8 million. I am told that the bank was able to access the Government’s enterprise finance guarantee scheme to recover the shortfalls that it had, but Mr Stewart was left with considerable debt. He has been told by local valuers who knew his properties that Alder King had knowingly valued them at a lower value. In their words, he has been sold down the river.
The relationship between Alder King and Lloyds has been the subject of much speculation and investigation, and indeed forensic analysis by my hon. Friend this afternoon. In October 2015, I asked the Serious Fraud Office to add Mr Stewart’s case to its wider investigation, but I was told that the amounts involved did not reach the necessary threshold. In my view and that of others, Mr Stewart and others have been let down by the various agencies and bodies that have been set up to protect their interests. Alder King’s website tells us:
“Alder King is regulated by the Royal Institution of Chartered Surveyors.”
The commercial property section of the RICS website states that
“you can be sure your survey will be carried out to the highest professional standards.”
There have been many other cases, so it is fair to ask why RICS has been so slow and reluctant to respond to this situation.
Another example—I will not go into it in great detail, because a legal case may well be pending—is a family business in my constituency that also banked with Lloyds. The bank appeared to engineer a default; this time, it brought in not Alder King, but PricewaterhouseCoopers. It tried to asset-strip the company to the benefit of the bank, but certainly not of the company or its employees. Not only is PricewaterhouseCoopers regulated by the Royal Institution of Chartered Surveyors, but senior employees have provided offices for RICS’ governing body.
Finally, it is important to point out that we are describing not just a crisis for businesses but a personal crisis for owners, often at cost to their health and their families. They ask, and I ask: if there are rules and procedures for companies regulated by RICS, why do those rules seem to work primarily in the interests of the banks and those acting in their name, rather than those of my hard-working constituents?
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for Cardiff Central (Jo Stevens) and congratulate her on securing this debate. The injustice that affected her constituent would warrant a debate in itself, but the fact that the same inequalities might have affected thousands of similar individuals deserves the attention of every Member of this House.
In my limited time, I will explain the situation of my constituent, Mr Alun Richards, in the hope of showing the damage caused by such malpractices. Shortly after my election last May, Mr Richards came to one of my constituency surgeries to explain his story. Alun Richards was once one of west Wales’s most successful businessmen. By the turn of the millennium, his farming and property enterprises had been recognised with awards, and they soon attracted the attention of Lloyds Banking Group. Eager to attract his custom, Lloyds offered Mr Richards a gold star account and an interest rate of 1% over base. After considering other offers, Alun took up the offer made by Lloyds, and all was well until the 2008 banking crisis.
Suddenly, with little notice, Alun’s bank managers in Carmarthen, Gwilym Francis and Ian Richards, transferred his accounts to a larger branch in Bristol. After a period of sustained silence, Alun spoke with his new branch to find out who his new bank manager would be. Stunned, he discovered that his new manager, Max Meredith, was in the business support unit, focused on recoveries. Mr Richards was understandably confused and alarmed. His business had been booming, and his new manager, Mr Meredith, agreed that the circumstances were not usual for such a transfer. He agreed to transfer Mr Richards’s account back to his old branch, but Gwilym Francis and Ian Richards at that branch refused to accept the account. Alun Richards soon received a visit from two representatives of the business support unit in Bristol, Mr John Holiday and Mr Jonathan Miles.
During the meeting, one of Alun’s accountants raised questions about Mr Miles’s behaviour and background. Mr Miles repeatedly claimed on this occasion and in the 2.5 years that followed that he was an employee of Lloyds. Mr Richards has since discovered that Mr Miles was actually a chartered surveyor, a member of RICS and a partner at Alder King estate agents. No official secondment was in place; Mr Miles even appointed partners from Alder King, Julian Smith and Andrew Hughes, as the Law of Property Act 1925 receivers. When that initially surfaced, Mr Hughes temporarily resigned. RICS has refused to take any actions and, following complaints against Bristol-based lawyers TLT, neither has the Solicitors Regulation Authority. The Insolvency Practitioners Association has also stood still.
The saga of Alun Richards’s case has involved Lloyds Banking Group, Alder King and the Royal Institution of Chartered Surveyors. Alun, who once owned enterprises totalling more than £5 million, was left penniless and on the road to ruin as a result of their actions. Similar injustices by those organisations have taken place in most constituencies across the UK. I wish it were possible for each Member of this House to understand how such scandals have affected their constituents, but unfortunately too many victims have felt powerless and remained silent.
At the heart of the matter are the Law and Property Act receiverships, which, due to their malpractice and dereliction of duty, should be considered by the Royal Institution of Chartered Surveyors. Unfortunately, there is cause to believe that RICS has failed to do so. I hope that this debate will encourage RICS to regulate Law of Property Act receiverships to the fullest extent and play its role in preventing injustices such as those that have affected my constituent.
It is a pleasure to serve under your chairmanship, Mr Hollobone. My hon. Friends have set out examples of how their constituents have been badly treated over a number of years, first by the banks that distressed their thriving and successful businesses and then by the failure to secure justice after a long struggle, often with the support of my hon. Friends and their predecessors.
This is not just about one bank. It has been about Lloyds, HBOS and Royal Bank of Scotland. A constituent of mine came to see me just last week about NatWest, his business having been run down in a similar way to those of my hon. Friends’ constituents’. Businesses that were successful, that paid their interest on time and that were in a position to continue making their payments were run into the ground, in order to realise the maximum possible amounts for the banks and not in the interests of the customer. That is the reality of what has happened over many years and I am afraid that it could still be happening today, given the system that still exists.
The Tomlinson inquiry found at RBS a lack of competition and conflicts of interest, as well as the need for a proper retail banking sector, and yet we are in a situation today where those issues are still to be addressed. RBS may well have its own compensation scheme being set up, but no money has been paid out and at this stage it is being handled by RBS itself. It is still not independent of RBS. At the heart of this debate is that lack of independence and whether there are conflicts of interest in the LPA system.
Often, banks will say that the poor levels of business lending are because businesses will not come to banks for that lending. Does my hon. Friend agree that it is cases such as those mentioned today that have deterred many small businesses from going to their local banks and that, by default, inhibit our ability to invest in our economy for the future?
My hon. Friend is absolutely right, and I will address that point now—I was going to make it later. Our economy continues to struggle. We see sluggish productivity and low growth, particularly with smaller businesses, and one of the reasons is the lack of access to finance for those small firms, which undoubtedly causes them problems. I am in no doubt that the reputational damage done by these scandals and the lack of trust among smaller firms in the banks are factors that contribute massively to the problem.
We have seen businesses distressed and put out, people’s livelihoods destroyed and people’s lives damaged as a result of the behaviour of some of the banks, and of the people working in them and the people working for them as supposedly outside professional consultants. In the debate last December about alternative dispute resolution we heard about the activities of lawyers who are seconded into some of the banks and about the way they carried out similar activities. The convictions for fraud involved management consultants, and today we are talking about surveyors. There are conflicts of interests, whereby professionals are seconded into banks and then take decisions in the interests of those banks—why would they not do so, when their future lucrative work depends on those relationships?—and referring their own firms for the ongoing work, no doubt for fear of losing such work in the future.
With the LPA, the contracts have now been written in such a way that they favour the lender over the borrower. The borrower cannot then challenge the valuation of surveyors, because the valuer’s duty is to the client, not to the borrower. The original intention of LPA receiverships, which was to create a balance between borrower and lender, has been completely overwritten by the way that the banks prepare their standard terms and conditions in their contracts. Of course, most smaller businesses cannot afford the cost of legal action to challenge what is happening, especially when they are up against the financial clout of the financial institutions causing these problems.
So what is to be done? How can such scandals be avoided in the future? What are the remedies for what has happened before? There needs to be a sea change to ensure that the chances of repetition are reduced. There needs to be compensation, not just a scheme that is administered very slowly and internally without proper independent scrutiny and operation. I am talking about RBS, but in fact it is ahead of the other banks, given that it has any scheme at all. Perhaps the Minister can look at how we can ensure proper scrutiny, independent regulation and a proper complaints process within RICS and other professional bodies, so that RICS members do not get scrutinised by other RICS members. My hon. Friend the Member for Cardiff Central (Jo Stevens) explained the situation extremely well: there is a judge, jury and executioner system within RICS and elsewhere. That has to change if there is to be proper scrutiny to prevent such injustices and an opportunity for remedy when they happen.
We have to prevent such things from happening again, and there has to be compensation. Whatever Government are elected on 8 June have got to take these things seriously. It is long beyond time for that. Justice delayed is justice denied. It is 10 years on, and many former small business owners have lost everything and are completely unable to get compensation for what has happened to them.
My right hon. Friend the Member for Tynemouth (Mr Campbell) talked about the Serious Fraud Office’s potential interest, and he is absolutely right. I would like to hear what the Minister says about the potential for an SFO investigation into each and every one of these scandals. What prospects are there in the future for further fraud investigation?
We have got to prevent such things from happening again, and we have got to have proper regulation. The FCA’s remit does not include the regulation of business lending; it is there to regulate consumers. It does have a role in regulating sole traders and smaller partnerships. Is it time that small and medium-sized enterprises are given the same protection as consumers?
There is also the issue of the LPA receivership system. The Labour Government introduced the Enterprise Act 2002, which reformed aspects of insolvency law, but LPA receiverships were not included at that stage. Given what we have heard, is it time that LPA receiverships were given the same status as administration? Should we go down the route of having the chapter 11-type system that exists in the United States? In some way, we need to return to the original intention of LPA receiverships of achieving a balance between the interests of borrowers and lenders and some kind of limit on the level of fees that agents can charge.
My final point is about the process that can be used to deal with complaints. It seems to me that having self-regulation, whether through RICS or elsewhere, is not working, given the examples we have heard about. Is it time to look at meaningful arbitration and proper dispute resolution? I have raised a number of times the issue of the small business commissioner, which the Government are creating. They have acknowledged that there is an issue with the unfairness of contracts for the SBC. We will have a chance to look at that. When that post is created, will the Minister consider the need for proper, meaningful dispute resolution—perhaps binding arbitration—and giving that responsibility to the small business commissioner in relation to these matters, as well as in relation to late payments, which are its primary purpose?
There are a number of issues that need to be picked up. The Minister can respond to them now. The next Government really will have to act, otherwise—my hon. Friend the Member for West Bromwich West (Mr Bailey) was right to intervene on this point—we will continue to have a system where the relationship between small businesses and the banks is very poor. Unless that is resolved, we will not improve the performance of our small businesses, which are a crucial part of our economy. In the meantime, those who have suffered very seriously by losing their livelihoods will not see the remedy that they should, and there will continue to be a danger of a repeat performance by financial institutions, if that is not already happening.
If the Minister would be kind enough to finish his remarks no later than 7.27 pm, that would allow Jo Stevens three minutes to sum up the debate.
It is of course a great pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Cardiff Central (Jo Stevens) on bringing the important topic of the regulation of Law of Property Act receivers back to the Chamber, and I congratulate other hon. Members on their contributions. This debate was postponed from March the 22nd because of the dreadful events on that day, and I am sure that I speak for everyone in the Chamber when I say that our thoughts are with the victims’ families even now.
This debate follows on from a debate that the hon. Member for Cardiff Central secured in September 2015 relating to concerns raised by one of her constituents, Mr Kash Shabir, about the appointment of fixed charge receivers by Lloyds bank and the conduct of the individual appointed. I understand that since then there have been separate investigations by the Serious Fraud Office and the Royal Institution of Chartered Surveyors into the treatment of her constituent by Lloyds Banking Group and Alder King, the firm of chartered surveyors used by the bank, but no further action has been taken against those investigated. She is dissatisfied with that outcome and, as a result, with the current regulation of LPA receivers. Law of Property Act receivers are also referred to as “receivers of rent” and “fixed charge receivers”. I will refer to them simply as “receivers”.
The Act in question is the Law of Property Act 1925, the key provisions of which in relation to receivers are sections 101, 109 and 110, which define the relationship of the receiver with the mortgagor and the mortgagee and set out the powers of the receiver. However, the Act provides that those provisions may be varied or extended by the mortgage agreement, and most modern mortgage deeds contain express provisions that replace or supplement the statutory provisions. The relationship of the mortgagor, mortgagee and receiver is therefore, as a general rule, governed by the contract creating the security for the agreed finance, not by the default provisions in statute. The terms of agreements vary from case to case but are likely to require the borrower to allow a person appointed by the lender to take over the management of the mortgaged property when the loan is in default, usually to collect rental income for the lender to service the arrears but with the right to sell the property if necessary.
On that basis, the appointment of a receiver provides a relatively straightforward way for the lender to protect its position. The ability to do that would seem, indirectly, to help keep the cost of borrowing low and the availability of credit greater than it would otherwise be. Those are clearly desirable objectives, but giving contracting businesses the right to decide the terms of their own contracts does not mean that the receiver has carte blanche as to how he or she exercises his or her powers. Receivers are under legal obligations. They must act in good faith and use their powers for proper purposes, and although their primary duty is to the lender in securing repayment of the secured debt, they must manage the mortgaged property with due diligence and have regard to the borrower’s interests.
There will be cases where lenders and receivers do not act properly, and the hon. Member for Cardiff West—I mean the hon. Member for Cardiff Central, not Cardiff West—described circumstances in Mr Shabir’s case where questions must at least be asked. In such cases, borrowers may have the right to seek compensation by an action for damages against the lender or the receiver in respect of the wrongs alleged to have been committed. Determining the rights and wrongs of such cases is a matter for the courts, and I can only recommend that borrowers caught up in such situations should take legal advice about their rights and remedies and how best and most economically to proceed.
The Minister has referred to the prospect of litigation, but does he not accept that in this situation—where a small business owner has lost their entire business, has no money and is up against the might of a financial institution—it is simply not possible for them to enter litigation? That is why some alternative form of redress and a scheme is necessary.
Of course, in a difficult situation where all of someone’s funds have been exhausted, I recognise that litigation would be a problem. It would not be appropriate for me as a Minister to comment on an individual case, but I hear what the hon. Lady says and will take away her suggestions.
The Minister mentioned Cardiff West, which is my constituency; my hon. Friend’s constituency is Cardiff Central. The point is not that we are discussing an individual case but that Members are trying to describe a systemic problem that exists in all our constituencies across the country. In many cases, as I outlined, constituents are unable to reveal in full in public what they have been through because of confidentiality agreements. As a Minister, does he not see the need for the Government to consider action along the lines suggested by my hon. Friend the Member for Cardiff Central (Jo Stevens) as a result of the systemic concern that Members are expressing?
I thank the hon. Gentleman for his intervention. In the particular case that the hon. Member for Cardiff Central raised, a series of investigations have not uncovered any wrongdoing. The Government are listening in terms of the problem vis-à-vis small, medium and larger enterprises that other Members raised, and we will be taking that away, but as things stand, we have found no evidence of anything untoward being done by any of these organisations.
Private law actions are one type of remedy, but they do not preclude the question of whether there should also be regulation of other kinds. Receivership is not specifically regulated. It is not subject to insolvency regulation. Receivers are, however, generally members of professional organisations with regulatory functions, and they will be subject to the regulatory rules applied by their professional body.
Most receivers are likely to be members of the Royal Institution of Chartered Surveyors. RICS was established by royal charter in 1868 and is independent of Government. To protect consumers and to maintain and develop the standing of the profession at home and internationally, RICS sets professional standards for its members and takes disciplinary action against them for breaches of its rules. RICS’s regulatory regime is governed by an independent regulatory board, which has a majority of non-surveyor members. RICS has recently announced new rules to deal with conflicts of interest that will be introduced early next year. Other receivers belong to the Insolvency Practitioners Association, which also has regulatory powers.
Over the years, RICS and the IPA have both responded to concerns that there are general issues that need to be addressed in the field of receivership. In 1999, they entered into a memorandum of understanding relating to a voluntary registration scheme for receivers to provide a system of voluntary regulation against agreed standards. The memorandum was updated in 2012 and 2015.
Some 200 receivers are also members of the Association of Property and Fixed Charge Receivers, also known as the Non-Administrative Receivers Association. It is a relatively recently formed body. It aims to represent the interests of receivers and to promote better standards. Unlike RICS and the IPA, it is not a regulatory body. NARA, RICS and the IPA are jointly reviewing the professional practice standards underpinning the work of their members as receivers. The review is expected to include a public consultation, which will consider the degree of independence required from the lender and the borrower in receivership appointments. The new scheme should strengthen the self-regulatory regime.
Receivers are appointed only where a lender has concerns about the value of its loan. The borrower may not agree with the lender’s action, but should have been aware of the possibility that a receiver might be appointed in certain circumstances from the outset. One of the potential problems is that the receiver may face a conflict of interest. Conflicts arise in many areas of professional practice and are generally successfully dealt with in sensible and proportionate ways. Sometimes professional businesses have to turn down business opportunities because they are conflicted and the conflict cannot otherwise properly be managed. Sometimes of course the right action is not taken and legal and regulatory action may follow against those who got it wrong.
The hon. Member for Cardiff Central has identified cases where things may have gone wrong. I am not in a position to say whether there were unacceptable or improperly managed conflicts of interest that ought not to have been permitted to occur in Mr Shabir’s case. That is a matter for the courts and the appropriate authorities in the light of the law and relevant regulatory rules. We should also remember when considering Mr Shabir’s case and others like it that receivership has existed for many years and has during that time presumably worked well in many cases. The independent regulation of receivers through their professional bodies is also long-established and is subject to ongoing review with the objective of improving standards and better protecting consumers.
A number of points were made by hon. Members during the debate. I will respond to them as best I can, but insolvency, financial services regulation and the professional regulation of surveyors are not matters for which the Ministry of Justice is responsible. I will, however, ensure that the points raised on those topics by the hon. Member for Cardiff Central and other hon. Members during our debate are passed on to the appropriate Departments.
The hon. Member for Cardiff Central asked whether RICS has been doing its job. The Royal Institution of Chartered Surveyors has investigated the allegations made by Mr Shabir and has not found evidence of misconduct. It has also offered to speak with the hon. Lady to discuss her concerns, but says that it cannot reopen its investigation without new evidence. The Serious Fraud Office carried out an investigation and decided there was insufficient evidence to meet its criteria for prosecution.
The hon. Lady also asked why the Government have not acted against Lloyds. The Government believe that financial service providers must be properly regulated, but the case for more or different regulation must be made before the present system is changed. The Financial Conduct Authority is considering matters relevant to the regulation of the provision of financial services to small and medium-sized enterprises. The Government will consider the FCA report when it is published. It would not be appropriate for the Government to comment further while the process is ongoing.
The Opposition Front-Bench spokesman, the hon. Member for Sefton Central (Bill Esterson) asked a question about wider economic and regulatory issues. I will refer all the questions regarding the working of the economy to the Treasury for consideration. The FCA is still working on the issues raised in the Tomlinson report. As I have said already, it would not be appropriate to anticipate its investigations and the report.
In conclusion, I acknowledge the vigour and tenacity with which the hon. Member for Cardiff Central has campaigned on behalf of Mr Shabir and others. I appreciate the concerns she has raised and the very difficult situations that have been created for her constituent and others by the financial crisis of 2008-09. I cannot intervene in specific cases or commit the Government to any particular action to change the legal or regulatory framework relating to receivers. I can, however, promise that the Ministry of Justice will continue to keep the issues for which it is responsible relating to receivers under review and pass on concerns raised to other Government Departments as necessary.
May I thank the Minister for his response? I felt heartened in some respects and a bit downbeat in others. I am grateful to him for saying that he will take the concerns away. I thank the right hon. and hon. Members who have contributed to the debate.
Rather than focus on a particular individual in my summing up, I want to say that, as my hon. Friend the Member for Cardiff West (Kevin Brennan) has pointed out, this is about systemic failure. It affects huge numbers of people. It is not just about businesses, it is about humans—about families, individuals and the crises that it has caused them. It is clear that the difference between the public rhetoric, which was mentioned by my hon. Friend the Member for West Bromwich West (Mr Bailey), and the private reality is very severe for all our constituents. We are looking for a wider remedy and redress system to prevent this happening again.
I am grateful to the Minister for saying that he will take things away and look at them, but there is clearly evidence of wrongdoing here. It falls in the gap between SFO criteria and local police force criteria for investigation. Large numbers of people who have been badly affected have fallen into that gap. We need to look at some way of ensuring that their financial situation is redressed.
Question put and agreed to.
That this House has considered the regulatory role of the Royal Institution of Chartered Surveyors in Law of Property Act receiverships.