Court’s decision gives power back to Insolvent Company Members/Creditors to pursue Banks for mis-selling of Interest Rate Hedging Products

It is often the case, where Banks have mis-sold Interest Rate Hedging Products (IRHPs) to Companies, that the Company, so crippled by the payments being made to the Bank, ends up insolvent and placed into Administration.

As a result, the Company is taken over and run by the Administrators, leaving the directors, members, and creditors with little or no control over what happens to the remaining assets of the Company – which would include; the right of action against the Bank in respect of the mis-sold IRHP.

Although it would be understandable to assume that, acting in the best interests of rescuing the Company and/or achieving the best possible result for the creditors, the Administrators would automatically pursue the claim against the Bank, this is not always the case – largely because of the costs involved in bringing the claim against the Bank.

Instead, the claim (which can be worth millions) is lost and no money is ever recovered from the Bank. However, after the decision of the High Court, Chancery Division in Hockin (and others) v Marsden (and others) [2014] EWHC 763 (Ch), this no longer has to be the case.

The Claimants brought a claim against the Administrators under a section of the Insolvency Act (s.1A 1986, Sch B1, para 74(1)), which allows claims to be brought against an Administrator who:

1. ……“is acting or has acted so unfairly as to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or

2. ……proposes to act in a way which would unfairly harm the interests of the applicant (whether alone of in common with some or all other members or creditors).”

The Judge did assess the basis of the proposed claim against the Bank, before deciding that it should be assigned to the Claimant and, in particular, whether or not it would in fact be a viable claim.

This decision is good news for members or creditors of insolvent companies, who otherwise would be left with no recourse against the Banks.

For more advice on the mis-selling of IRHPs and possible claims against Banks, please contact the Banking & Finance Litigation Department on 01202 525333.