Developers can’t prove bank's misconduct

Posted: 9th November 2015

RCJSuspicions are rife that certain banks may have deliberately engineered clients into defaulting on loans so that they can step in to pick up the pieces and make a profit from turning around viable businesses. However, two property developers who lost heavily on a hotel building project have failed to convince the Court of Appeal that that is what happened to them.

The hotel was three weeks away from opening when the businessmen’s limited liability partnership ran out of bank facilities. The bank appointed administrators and the hotel was sold to a subsidiary of the bank’s parent company. The latter completed the development and subsequently ran the hotel.

The businessmen argued that the appointment of administrators was precipitate and that the hotel had been sold at an undervalue. They sought damages from the administrators, who were alleged to have had a conflict of interest and to have unfairly harmed the businessmen's interests. However, their claim was struck out by a judge who found that it had no reasonable prospect of success.

In ruling on the businessmen’s challenge to that decision, the Court acknowledged that there were concerns that some banks might have used administration as a means of moving potentially successful private businesses into their turnaround divisions with a view to profit and shoring up their own financial performance.

But, dismissing the businessmen’s appeal, the Court noted that they had been given every opportunity to make good their allegations of wrongdoing on the part of the administrators but had failed to do so. In the circumstances, there was no realistic possibility of their claim succeeding. The businessmen’s claim against the bank had previously been struck out and the partnership had been wound up.