Bank gives away £8m to ex-Farepak hamper customers

A bank has decided to make £8 million available to help former customers of the collapsed Farepak Christmas hamper business after a judge suggested it should look to its morals.

Mr Justice Peter Smith had pointed the finger at Farepak's bankers during a hearing at the High Court in London.

HBOS defended its actions last month after the judge accused it of taking a "hardball approach" and suggested the bank should "seriously consider" adding to the £2 million it put into a distress fund in 2006 for Farepak's customers.

HBOS is now part of Lloyds Banking Group, which said in a statement today that it has chosen to make an ex-gratia payment of £8 million "in the light of recent comments from Mr Justice Smith".

It said it emphasised that HBOS acted legally, but said the group had "wider responsibilities" to the community as well as legal and financial obligations.

The Lloyds Banking Group statement said: "We are now working to ensure that this money goes directly to those customers.

"While HBOS acted legally in its dealing with the company, as the judge himself acknowledged, we are mindful that, in acquiring HBOS in 2009, the Group took on not only its legal and financial obligations, but also wider responsibilities.

"We have a crucial role to play in supporting business and the communities in which we operate.

"In making our decision we have looked carefully at the very specific circumstances surrounding the failure of Farepak and the economic and social impact resulting from it."

The bank said last month that its staff "acted entirely appropriately" throughout its relationship with Farepak's parent company, European Home Retail plc, which also went into administration.

The judge spoke at a hearing in London after a Government companies' watchdog abandoned attempts to penalise former Farepak bosses by having them barred from being company directors.

Lawyers representing the Insolvency Service - part of the department headed by Business Secretary Vince Cable - halted litigation after "consideration of evidence" was given.

The court heard that following the collapse, claims by customers and "agents" against Farepak amounted to about £37 million.

Mr Justice Smith suggested in court that HBOS sat like "stookies" - a Scottish slang term for plaster casts - by "doing nothing which involves any reduction of their recoveries".

He told the court: "It is striking that during the whole of the period it appears, in rough and ready terms, that further investment from the bank of between £3 million to £5 million would have probably saved the group, but the HBOS was not prepared to make it.

"It of course was perfectly entitled to do what it did and to continue to require the company to collect deposits, knowing full well that those depositors would not get their money back if the companies went into insolvency and knowing full well that those deposits would have benefited the bank alone.

"This is of course, in my view, completely contrary to the way in which these defendants (former Farepak bosses) conducted themselves. They did everything, as far as I can see, possible to save the group.

"When the companies went into insolvency, a distress fund was set up for the benefit of the depositors. HBOS made a £2 million contribution to that payment.

"This is not a court of morality but I would suggest that HBOS really ought to... seriously consider whether or not they ought to make a further substantial payment to the compensation fund."

In 2008, the Government pumped billions into a number of banks, including HBOS, to prevent a financial sector collapse in the wake of an economic crisis.

The judge added: "It is ironic that if the bank's reputation for playing hardball had been repeated by the Government... HBOS would not be here and that is something else that HBOS might like to think about."

Richard Highley, who represents former bosses at Farepak, said last month that the judge's analysis of the firm's downfall six years ago was a "total vindication" of directors' conduct.

Lloyds Banking Group has said it will not claim its legal costs, amounting to around £1 million, from the liquidation fund and the judge himself acknowledged that HBOS had acted legally.

It said that as HBOS has now been absorbed into Lloyds Banking Group, the Group has taken on its responsibilities.

Business Secretary Vince Cable said: "This increased compensation will go some way in helping those who were left considerably out of pocket by Farepak's collapse.

"My department and Lloyds will work to make sure this money gets to the victims as quickly as possible. I will be meeting a group of Farepak's creditors and MPs next week to discuss the case."