Barclays held liable for collapse of company: Bank ordered to pay interim damages to administrators

BARCLAYS BANK has been ordered by the High Court to pay damages of pounds 1.8m, write off a loan of pounds 1.3m and pay costs of up to pounds 200,000 to administrators of a Welsh manufacturing company which the bank forced into administration in 1990. The bank faces an eventual bill of between pounds 4.56m and pounds 11m pending a further hearing, whose date has yet to be set.

The case is an embarrassment for Barclays, which with Britain's other high street banks stresses the support it gives to troubled companies.

Mr Justice Hordern, giving his judgment in chambers, refused Barclays leave to appeal against his decision last week that it was liable for damages. He said the bank's breach of contract had caused the demise of Crimpfil, a Welsh company that employed 150 people before its collapse.

The judge said yesterday that Barclays' argument that the company was doomed anyway was not correct. The judge also criticised the report into Crimpfil provided by the bank's expert accountants, Coopers & Lybrand.

A spokesman for Barclays said: 'We will be studying the judgment before deciding how to proceed. We are certain this was a one-off incident. The case does not create a precedent and we are not expecting any similar claims.'

The action brought by Crimpfil's administrators, Leonard Curtis, centres on a letter sent by Barclays on 17 July 1989 to the company, a maker of car seat covers, confirming an overdraft facility of pounds 2m lasting 12 months.

Barclays later decided that money owed by trade creditors in the USSR to Crimpfil could no longer be relied on as collateral, and in May 1990 cut Crimpfil's short and medium-term borrowing facilities from pounds 5m to pounds 700,000. The company could no longer trade and went into administration.

The crux is that the letter confirming the pounds 2m overdraft facility lacked the usual clause making it clear that the overdraft was repayable on demand. The bank called in the overdraft only six months into its 12-month duration.

The pounds 1.8m award is an interim payment. At the final hearing into Barclays' liability, probably some months away, the administrators will be seeking a maximum of pounds 11m.

Although the judge has refused Barclays leave to appeal against the original order, the bank may ask the Court of Appeal for leave to appeal.

The judge took the unusual step of ordering the bank to pay costs forthwith. The case has taken three years to come to court, and observers expect the costs to be at least pounds 200,000.

Company rescue specialists say that although the key part of the case, the lack of the vital clause in the overdraft letter, is unlikely to be common, directors of other collapsed companies may be interested in bringing similar claims against banks.

Barclays said it was usual for overdraft letters to contain a clause saying that the overdraft was repayable on demand. The bank's usual lending conditions applied.