Banking & Finance e-bulletin

In this issue:

Welcome

The state of recovery of the loan market

Bank access to UK Export Finance products

Unfair relationships under the Consumer Credit Act (CCA) - a wider test for lenders

Lenders rights in sale and rent back schemes take priority over promises of occupation

The fatal typo which led to a company’s demise

February 2015 dmhstallard.com

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Welcome to this edition of our Banking & Finance e-Bulletin. In it we reflect on the current health and prospects for the loan market, and deal with the new toolkit issued by UK Export Finance. We also look at some recent cases on unfair relationships in consumer credit, and at a lender’s rights in a sale and rent back deal.

There is also a cautionary tale about a typo which led to the demise of a company. That case against Companies House received a good deal of press coverage when it was decided recently.

The topic of Bank Confidentiality which was discussed in our previous edition has also attracted a good deal of recent comment. Apparently the discussions in Davos included an idea for the setting up of a shared due diligence service to carry out background checks on small businesses and store the information on a common platform.

If you would like to find out more about any of the topics in this edition or if you would like us to cover any particular topics in future editions please let us know.

Welcome.............................................................................................

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Gwen GodfreyHead of Banking & Finance

01293 60 5551 gwen.godfrey@dmhstallard.com

For more information on the Banking and Finance Group click here.

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The state of recovery of the loan market............................................................................................

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The outcome of the British general election in 2015, and any referendum on the future of the UK’s EU membership, have the potential to have a significant bearing on the loan market and its growth or otherwise.

Are there any further developments anticipated or that you would like to see? Regulation will continue to be at the forefront of developments in the market and will clearly have a bearing on market activity.

We saw last year the implementation of various EU directives and regulations and there will continue to be developments in this respect. This year there will be further developments in relation to the Capital Requirements Directive IV package. For instance, the European Commission recently published its final version of the delegated regulation in respect of liquidity coverage requirements (LCR) for credit institutions and investment firms. The LCR is due to be phased in over four years, starting at 60% from 1 October 2015. The Prudential Regulation Authority (PRA) is planning to amend its liquidity rules in light of this and has commenced a public consultation. The PRA is planning to publish its final rules and a supervisory statement in the second quarter of 2015, in time for the commencement of the LCR.

If you have any queries on the topic please email Meera Jansen at meera.jansen@dmhstallard.com or your usual contact at DMH Stallard LLP.

The following interview with Meera Jansen, partner in our Banking and Finance Group,

was first published on Lexis® PSL Banking & Finance. It describes a vibrant loan market with a largely positive outlook.

What were the most significant developments for the loan market in 2014?Arguably one of the most significant developments in 2014 was the continued recovery of the loan market. The market saw its busiest year since 2007 and was once again the busiest market in Europe. M&A and IPO-linked loan transactions more than doubled compared with 2013. Further, borrowings moved towards value-added event financings and the spread in margins across credits was approaching pre-economic crisis levels.

What does the future hold for the loan market? The outlook for the loan market is largely positive given the strong performance last year. Corporate confidence is high and it is likely that M&A activity will continue to be the main contributor to the loan market. Real estate financing is likely to continue its slow recovery, thanks mostly to the increased risk appetite of investors.

The majority of lending will continue to relate to London-based assets, although there will be activity in the regions as well. Alternative finance will play a significantly larger role in the loan market as the internet has enabled people seeking funds to connect directly with funders via online platforms. The growing popularity of this method of finance with SMEs will likely continue given its relative simplicity in comparison to obtaining more traditional forms of finance. Although the outlook for the loan market is positive, its growth will remain vulnerable for the foreseeable future. Competitive pressure will continue to influence the loan market and global geopolitical and economic risks will also have an influence.

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Bank access to UK Export Finance Products............................................................................................

UK Export Finance (UKEF) has published a toolkit for use by banks accessing its short-term bank guarantee products. It is part of the government’s drive to encourage exports.

The toolkit provides an overview of the Bond Support Scheme and the Export Working Capital Scheme. These are the two main short-term bank guarantee schemes that UKEF offers.

It describes how banks can access these programmes for the benefit of their clients and answers frequently asked questions relating to the schemes. The toolkit is intended to be used in parallel with the bank’s own policies and procedures in relation to credit applications and trade transactions.

UK Export Finance: How to access export finance: a guide for banks (20 January 2015) can be downloaded from www.gov.uk/government/publications.

If you have any queries on this topic, please email Gwen Godfrey at gwen.godfrey@dmhstallard.com or your usual contact at DMH Stallard LLP.

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Unfair relationships under the Consumer Credit Act (CCA) - a wider test for lenders

This is likely to have a significant impact on the way that lenders run their consumer credit businesses. Deciding whether a relationship is unfair is no longer based on compliance with their legal and regulatory obligations alone, they must also not act dishonestly.

Section 140A was initially aimed at protecting borrowers and guarantors from abuse by lenders and this broader test will make it easier for those individuals to resist claims by lenders to enforce borrowing obligations. However, even if the courts do make a finding of unfairness, there is still a lack of guidance on appropriate remedies and the Supreme Court said this was a matter for the County Court to decide. It is therefore possible that Mrs Plevin and other borrowers or debtors faced with similar situations could obtain a finding of unfairness but receive no remedy, or only a nominal award of damages.

If you have any queries on this topic please email Yasmin Tivey at yasmin.tivey@dmhstallard.com or your usual contact at DMH Stallard.

Section 140A to 140C of the CCA allows courts the power to reopen

credit agreements where there is an unfair relationship between an individual creditor and the debtor. Under section 140A, the courts may make an order in connection with a credit agreement if it determines the relationship between the creditor and debtor arising out of the agreement is unfair due to one or more of the following:

• any terms of the agreement or of any related agreement;

• the way in which the creditor has exercised or enforced any of his rights under the agreement or related agreement; and/or

• anything done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

In the recent case of Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, Mrs Plevin was sold PPI together with a loan but the level of commission received by Paragon (71.8% of the premium) was not disclosed to her. The main question for the Supreme Court was whether a relationship could be unfair where the Insurance Conduct of Business sourcebook (ICOB) rules had not been breached. In a unanimous judgment they held that, while the rules gave some evidence of what the standard was, they do not determine whether the relationship is unfair. Failure to disclose a commission as high as 71.8% was sufficient to make the relationship unfair. If Mrs Plevin had known the size of the commission she may have questioned whether the PPI represented value for money.

The test formulated by the Supreme Court widens situations in which courts can find the relationship between a creditor and debtor to be unfair.

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Lenders’ rights in sale and rent back schemes take priority over promises of occupation

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There have been recent test cases in the Court of Appeal and Supreme Court which

are known as the North East Property Buyers (NEPB) Litigation. The principles will be of interest and relevance to lenders nationwide. The cases have determined that a mortgagee’s rights take priority over the interests of occupiers.

These cases involved a scheme whereby a person sold their home to nominee purchasers of NEPB. The seller remained in occupation pursuant to NEPB’s promise that they would be allowed to remain in the property after the sale. NEPB took out a buy-to-let mortgage to fund the purchase and the lender was not told of the promise made to the seller. The loan was made on the basis that the purchase was made with vacant possession. Exchange of contracts and completion of the transfer and mortgage all took place on the same day. The mortgage did not permit the right of occupation promised to the seller by NEPB. NEPB failed to keep up payments under the mortgage and the lender sought possession of the property.

The Court decided that the acquisition of the property and the grant of the legal charge formed one indivisible transaction and it was not possible for rights of an occupier to arise between the acquisition and the charge so as to bind the lender. Consequently, the lender’s rights took priority over the interests of the occupiers.

If you have any queries on this topic please email Rachel Martin at rachel.martin@dmhstallard.com or your usual contact at DMH Stallard LLP.

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The fatal typo which led to a company’s demise

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In a recent case (Sebry v Companies House and another [2015] EWHC 115 (QB)) the High Court held that the Companies Registrar owes a duty to companies whose records it amends to take reasonable care not to wrongly record them as having been wound up by court order.

On 20 February 2009, the records at Companies House were amended to show Taylor & Sons Limited as having been wound-up by court order when in fact it was a company called Taylor & Son Limited which had been wound up. This one-letter administrative error meant that the suppliers and customers of Taylor & Sons Limited thought the company was in liquidation.

Attempts to reassure them failed and within two months the company had gone into administration.

The court held that Companies House was responsible for the catastrophic loss of and ultimate collapse of Taylor & Sons Limited. The amount of damages payable by Companies House has yet to be finally assessed.

If you have any queries on this topic please email Gwen Godfrey at gwen.godfrey@dmhstallard.com or your usual contact at DMH Stallard LLP.

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