Derek Sach and RBS: Last of Fred Goodwin’s trusty lieutenants comes under fire over 'restructuring' tactics

Derek Sach placed at heart of the restructuring at RBS that drove viable businesses to the wall

Months ago he was being  fêted after helping nurse the stricken travel agent Thomas Cook back to health. Now Derek Sach’s ruthless restructuring unit at Royal Bank of Scotland has provided yet more evidence of the sickness at heart of the nationalised lender.

Lawrence Tomlinson, “entrepreneur at large” at the Department for Business Innovation & Skills, has accused Sach’s Global Restructuring Group (GRG) of forcing viable businesses to the wall purely to turn a profit for the bank. And a Bank of England report into RBS’s lending by Sir Andrew Large has now said that RBS has left itself open to accusations of conflicts of interest from small firms that fall into the clutches of the GRG given that West Register, an RBS business, was able to get property cheaply from distressed firms.

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Derek Sach: Last of Fred Goodwin’s trusty lieutenants comes under fire over 'restructuring' tactics

Editorial: Has RBS learned nothing from the financial crisis?

The Prudential Regulation Authority and the Financial Conduct Authority will also have to decide whether to launch formal investigations having had the report passed on to them by Business Secretary Vince Cable. In response RBS has hired City legal firm Clifford Chance to assess the claims made in the Tomlinson report. It’s a dramatic fall for Sach, who had been dubbed a “sage” of the restructuring community by his admirers.

Not only did he help reverse Thomas Cook’s alarming nosedive, he also played a key role in giving HMV a second chance, while his division was instrumental in securing Liverpool Football Club for John Henry’s Fenway Sports Group in the teeth of opposition from the club’s previous owners, Tom Hicks and George Gillette.

Mr Sach was hired by RBS in 1992 at a time when the bank was saddled with a sizeable core of under performing loans from a bugbear of the banking industry: commercial property. Having cut his teeth with 3i, the private equity firm, he took a radical new approach to dealing with troubled and insolvent businesses, seeing them as an asset rather than a burden and as such something that could be turned for a profit. In charge of his own unit at the heart of the bank, he went about treading on toes and slaying sacred cows. First, he made accountants tender for receiverships.  RBS’s rivals were in the practice of handing out receivership jobs to selected firms, but Mr Sach wanted competition even if his critics claimed it led to “low- balling”, where the firms  keenest for the work would quote ruinously low fees.

Secondly, Mr Sach abolished the practice of allowing insolvency specialists who had been nursing sick companies to be appointed as receivers once those companies had gone bust. This annoyed the rest of the profession, which worked on the notion that the incumbent specialist is best placed to handle a receivership. Despite the opposition, his policies were described as “a rip-roaring success” both for RBS and its shareholders.

More recently Mr Sach, the last of Fred Goodwin’s lieutenants  at RBS, has taken on the role of a business “elder statesman”, offering his opinions, and his solutions, for a selection of society’s ills.

Earlier this year on a visit to Birmingham he growled about the internet revolution, blaming it for breeding a generation of young adults who can’t write English and rely on “incomprehensible text messages”.

He also talked about the need for a “fundamental restructuring” on the High Street in the wake of the problems of companies such as Jessops, HMV and Blockbuster.

“GRG’s modus operandi is helping to promote a ‘turnaround culture’ in the banking industry,” he told The Daily Telegraph in an article sponsored by his unit in October. “Our approach offers the best possible chance to turn businesses around.”

By contrast, Mr Sach’s critics accuse him of arrogance, while small firms gobbled up by the GRG have a ready supply of horror stories. 

Dave Williams, the proprietor of  Orchard Private Day Nurseries, is one of them. He says he found himself at the mercy of the GRG after a bad year following the financial crash. He says his predicament was compounded by his having to accept an interest rate swap product as a condition of a loan from NatWest, part of the RBS group,  that left him paying £6,500 a month over the odds for his borrowing.

Mr Williams said: “Fortunately I’m still in business. They were turning the screw to cut me off when the interest rate swap thing broke and then I got letter two days later to say they weren’t. My life been on hold for five years.” He says he has restructured his business but because of the swap he reckons the company is short of up to £500,000. Music, no doubt, to Derek Sach’s ears.

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