HBOS adds £8m to Farepak distress fund
HBOS has agreed to pay an additional £8m into a fund set up to help former customers of Farepak, who lost their savings with the company when it collapsed.
HBOS increased its contribution to the compensation fund to £10m following criticism from a High Court judge over its “hardball approach” to Farepak’s difficulties.
Mr Justice Peter Smith said the bank should “seriously consider” increasing the £2m fund, which was created in 2006 when Farepak went into administration along with its parent company, European Home Retail plc.
In a statement, Lloyds Banking Group, which now owns HBOS, said it is making an ex-gratia payment of £8 million “in the light of recent comments from Mr Justice Smith”.
The statement continued: “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.”
Mr Justice Smith said HBOS “forced” Farepak directors to take £10m from its customers while the company was heading for insolvency.
Farepak’s directors hoped to safeguard £4m of customers’ money by placing it in a trust, but the company was prevented from taking this course of action by HBOS.
This meant that the cash was available to be repaid to HBOS when Farepak failed.
When Farepak collapsed it owned £35m to 120,000 savers, but savers were offered just 15p in the £1.
In contrast, it repaid its £31m loan from HBOS in full.
A loan of between £3m and £5m could have safeguarded the future of Farepak and protected its customer’s savings, but HBOS was unprepared to support the company.
A case against the directors of Farepak has been withdrawn by the Insolvency Service.