Company Collapse – HBOS Must Share Blame

The collapse of Farepak in 2006 received widespread press coverage, with thousands of families facing the loss of their ‘Christmas Club’ savings. In all, more than 100,000 investors lost a total of more than £37 million.



The company collapsed after failing to negotiate an extension to its banking facilities. When the Insolvency Service went to the High Court to have nine former directors of Farepak disqualified from acting as directors, the Court refused to do so, finding that the directors had done nothing wrong.



Instead, the Court focused its criticism on bankers HBOS, which, the Court found, had precipitated the insolvency by its actions. The bank’s main facility to the company was backed by security and it had ‘played hardball’ with the company, acting in its own interests while the directors sought to avoid an insolvency.



As a result of the criticisms, the Insolvency Service dropped its action against the former directors. The costs of the action will therefore be paid by the taxpayer.



It is to be hoped that this decision will result in bankers being more open to negotiation with companies in financial difficulties.