Bankers at HBOS should be held at least partly to blame for the collapse of Farepak because of their "hardball approach" in refusing to extend its loans to the firm, according to a High Court Judge.
The Christmas voucher firm, which left 116,000 customers with losses totalling £37m when it failed in 2006, could have been saved by HBOS executives who instead opted to let it collapse by acting like "stookies" - Glaswegian slang for plaster casts – Mr Justice Peter Smith said yesterday.
Former investors in the company reacted with dismay when the Insolvency Service announced yesterday that it was suspending its attempt to punish Farepak's bosses by preventing them from acting as company directors in future.
But the judge said that in contrast to HBOS, Farepak's former bosses had done "everything possible" to rescue the firm, after legal action was halted one month into a trial in London.
The firm's demise was particularly controversial because many of those who lost out were low-paid or vulnerable individuals.
Mr Justice Smith said it was "striking" that "further investment from the bank of between £3m to £5m would have probably saved the Group, but the HBOS was not prepared to make it".
He added that the Bank was "perfectly entitled to do what it did", and HBOS said yesterday that its staff had acted "entirely appropriately".
However, the judge questioned the ethics rather than the legality of the banks actions and called on HBOS to offer customers up to £10m more to compensate their losses.
"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," he said. "It seems to me that what happened there, whilst apparently legally acceptable, might not be regarded in the public's eyes as being acceptable."