RBS defies Customs over failed companies' £200m

Royal Bank of Scotland is in a stand-off with the insolvency industry and the Government over payments totalling around £200m being held up in companies that have gone into administration or receivership.

The row follows a ruling nearly two years ago by the Privy Council in a New Zealand case known as Brumark. The decision, later backed by Lord Hoffman in a UK case called Cosslett, said that in many cases the fixed charge taken by banks over a company's assets may not be valid if it becomes insolvent.

This ruling would in effect push the banks down the pecking order of companies to be paid out behind preferential creditors like the Inland Revenue and Customs & Excise.

Government tax collectors have told insolvency practitioners they expect them to apply the Brumark ruling. However, not all banks have been quick to do so.

"Some banks are in denial about preferential creditors' claims to funds, and they're causing a stalemate," said John Verrill, president elect of R3, the insolvency trade body. "We currently have liquidators holding the cash to which both banks and preferential creditors are laying claim. While the banks are putting pressure on insolvency practitioners to pay them money owed, the Inland Revenue and Customs & Excise have said if the money is paid to the banks, they will hold insolvency practitioners personally accountable.

"Insolvency practitioners are caught between a rock and a hard place. There is an atmosphere of menace – a refusal by the banks to confront reality, and a refusal by the preferential creditors to surrender the cash to the banks. Up to £200m may be at stake."

It is understood the largest amount is being held up by Royal Bank of Scotland (RBS), which is also the UK's largest business lender.

An RBS spokesman said: "We believe that in appropriate circumstances we are legally entitled to assert a fixed charge over book debts and we review each case on its own merits."

But the industry is angry. It believes RBS should take a case to court to settle the dispute.

"Why are they refusing to allow insolvency practitioners (IPs) to draw fees unless they pay over sums which if it went to court they might not be entitled to?" asked a leading insolvency practitioner. "Why do they ask whether IPs recognise their fixed charge before giving them the receiverships, and why do they complain when IPs make applications to court to resolve the issue? Other banks are being more grown up about this."