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Window of opportunity for IPs to act on interest rate hedging claims is closing

Provided by Insolvency News

As the IRHP redress scheme closes at the end of May, Rob Evans of Moore Blatch solicitors and Hanif Virji of AHV Associates explain why potential claimants need to get a move on

Rob Evans
Partner, Moore Blatch
Hanif Virji
Founding partner, AHV Associates

While the latest figures by the FCA show some 94% of customers assessed in the current interest rate hedging products (IRHP) redress scheme have found to have been mis-sold products, time is running out for the scheme, which closes 31 May.

What’s more, while some 18,800 businesses have been invited to join the review – with 84% (15,792) opting in and 79% (12,476) of that total having been assessed for compliance of sale so far – it seems likely that Insolvency Practitioners may be sitting on a further reserve of untapped claims.

Dissolved businesses and those in administration are as eligible for redress as normally trading companies, while those in financial distress are being actively prioritised for bank attention.

“These products were sometimes the cause of insolvency and certainly exacerbated drain on cash flow in many cases” says Hanif Virji, founder of derivatives and corporate finance advisory firm AHV Associates. “So it’s worth looking even at long-concluded cases to see whether a product may have been in place.”

While it is well known that the hedging products, which include interest rate swaps, caps, floors, collars and structured collars, were often sold alongside loans and mortgages (with sales often being conditional on the hedge being executed), Virji says in his experience that the products were also prevalent in many Hire Purchase and leasing agreements.

Where products are found to have been mis-sold, companies have the right to claim amounts paid under the terms of the IRHP, plus interest on those amounts, as well as consequential losses arising from the sale of the IRHP. Claims may be made where transactions were executed after December 2001, meaning the usual six year limitation period does not apply.
“According to the Insolvency Act 1986” says Virji, “it is an obligation of an IP to identify assets and obtain best realisation – and that includes IRHP claims”

Furthermore, Rob Evans of Moore Blatch Solicitors argues a firm which has worked closely with AHV on resolving IPs’ IRHP claims, IPs may be open to charges of professional negligence if they do not pursue claims.

“Given the publicity surrounding the swaps issue, I can certainly see the next set of claims management companies being set up to specifically deal with failure to properly pursue swap claims inside and outside of the redress scheme. This would almost certainly include IPs. Limitation will be a key disputed issue and failure to take the relevant steps to consider claims now whilst the redress scheme is still open could well be considered to be negligent.”

For practitioners looking to find out whether active or closed cases may include potential mis-selling claims, Evans advises raising the issue with former directors (on the proviso that in instances of mis-selling, Directors may be unaware that they had any IRHPs), followed by a search of account statements to reveal payments either made or received from the IRHP product.

“Probably most prudently”, he concludes, “IPs should consider a simple request to the Bank in question, in a standard form, in all cases asking for confirmation of details of all IRHP/Tailored business loans entered into since 2001”.

For further advice, practitioners are encouraged to contact Evans or Virji using the contact information below.

Rob Evans
T: +44 1489 884124

Rob Evans is a partner in Moore Blatch’s professional negligence team, and a member of the Professional Negligence Lawyers Association. He has more than a decade of experience of professional negligence actions including claims against solicitors and surveyors, complex title rectification claims and mortgage fraud. Rob and his team specialise in acting for SME’s and individuals in obtaining damages for the miss-selling of financial products including swaps.

Hanif Virji
T: +44 20 7958 9678

Hanif Virji, a founding partner of AHV Associates LLP, has been active in the derivatives markets since 1988. Hanif has written valuation models, traded derivatives globally, structured products and advised large corporations on risks for over 25 years. He is currently active in advising SMEs who have been mis-sold interest rate hedging products as well as acting as an expert in litigation cases.