Bank Mistreatment Of SMBs Goes To UK Supreme Court

Clydesdale bank sign

U.K. lawmakers continue to crack down on unfair business practices, particularly when it comes to small business lending. But MPs are turning to a new strategy to ramp up their efforts: get the Supreme Court involved.

Reports in SmallBusiness.co.uk last week said MPs have petitioned the Supreme Court to make changes to financial services regulations related to “reflective loss,” which would widen the opportunity for small businesses to sue banks. It could be particularly important for the small businesses that were forced into insolvency by financial institutions including Clydesdale, RBS and Lloyds, all of which have admitted to wrongdoing and have taken various measures to remedy issues of unfair treatment to small business clients.

Reflective loss is a legal principle that a company, not its shareholders, has the right to recover company losses, as Finance-Disputes.co.uk explained in a 2017 article.

MPs’ request to the Supreme Court could allow some small businesses to sue their bank for the first time.

Kevin Hollinrake, MP and co-chair of the All-Party Parliamentary Group (APPG) on Fair Business Banking, led the group’s unprecedented intervention in an ongoing Supreme Court case last week, championing legislative changes that would enable small businesses to sue banks. Current rules mandate that the insolvency practitioner only has the power to initiate such legal action. But because that insolvency practitioner often comes into the picture after a bank makes insolvency orders, those practitioners are reluctant to sue that financial institution.

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