This guidance note is in four parts:
- We set out here various ways in which we already understand some Customers may have suffered D & C losses as a result of the IAR Fraud. We recognise that this may not include all forms of potential D & C losses and we will explore with you any areas of financial loss that you feel may be relevant, not just those listed below.
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- For the purposes of the Re-Review, there are three categories of Customer that may have suffered financial losses:
- The company or group of companies or sole trader or partnership that was the corporate customer of the Bank and was referred to the IAR (for simplicity we refer to any of these entities or groups as the ‘Company’);
- Directors/de facto directors/those sufficiently involved in managing the Company (we refer to these individuals as ‘Directors/Managers’); and
- Shareholders or partners (depending on the type of entity) in the ‘Company’ are referred to for simplicity as Shareholders.
- Some Customers will have been both Directors/Managers and Shareholders. We will consider all relevant roles and forms of D & C losses for each Customer (but without compensating twice for the same loss).
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- Company losses will ordinarily be in the form of lost income or extra costs, including –
- lost profits on sale of goods or services that would have occurred were it not for the fraudsters’ involvement (including, where applicable, any lost sales due to management being unavailable to run the business, where that can fairly be attributed to the IAR Fraud); or
- Company assets sold at an undervalue to the fraudsters, or by them; or
- excess costs suffered (such as QCS consultancy fees, directors’ remuneration paid to fraudsters, bank interest and penalties) that would not otherwise have been incurred; or
- professional fees of insolvency practitioners or other advisers that would not have been incurred but for the IAR Fraud.
- Such transactions would ultimately result in reduced cash inflows, or additional cash outflows, of the Company.
- If the Company was loss-making and had negative cash flows (irrespective of the IAR Fraud), it may be that the fraudsters caused the Company to continue trading when it should properly have been placed into a formal insolvency process, with the result that the Company suffered additional trading losses and cash outflows after it should have ceased trading.
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- As explained in ‘Our Assessment Methodology’, losses are calculated as the difference between personal losses you actually suffered and any losses you would have suffered (or personal income/wealth that would have arisen) if the IAR Fraud had never happened.
- Where you are a Director/Manager, the losses suffered by the Company are often the starting point for identifying your personal D & C losses, but you may have been affected in other ways as well. D & C losses for a Director/Manager may include -
- reduced remuneration (e.g. due to losses suffered by the Company, which may have affected pay/bonus)
- lost remuneration (e.g. due to being forced out of the Company by the fraudsters)
- lost income from alternative employment/business (e.g. if the Company had been placed into an insolvency process earlier, Director/Managers would have been free to start a new business or employment)
- non-repayment of loans made to the Company and interest/fees paid on personal loans taken out
- costs of meeting personal guarantees in favour of the Bank
- costs of professional advice taken that would not have been taken in the non-fraud Counterfactual Scenario
- bankruptcy costs
- repossession of your home, if mortgaged, plus associated penalties
- the financial effects of reputational damage (e.g. due to the Company trading fraudulently, or by association with the fraudsters), such as reduced earnings compared to an individual in an equivalent position without such reputational damage, or damage to credit rating making it impossible to start another business
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- If you are a Customer who was an individual Shareholder you may have suffered D & C losses such as loans made to the Company or losses arising from giving personal guarantees of the Company’s debts that would not have occurred if it were not for the IAR Fraud. Or, you may have taken more shares in the Company in exchange for cash or assets than you would have done in the absence of the IAR Fraud.
- If you received lower drawings, dividends, or other distributions relating to your share in the Company than would have been the case without the impact of the fraudulent activity (if the IAR Fraud had not affected the Company) this would be a type of D & C loss.
- For incorporated entities, shareholders’ shares in a Company have a positive value if the Company has a positive equity value (positive equity means the business is worth more than the Company’s debts). If the Company’s equity value was reduced or became negative as a result of the IAR Fraud, this would result in D & C losses being suffered by Shareholders (due to the reduced value of your shares).
- In considering whether a Company would, or could, have had valuable equity, we would also need to take into account any amounts owed to creditors of the Company (including the Bank) and how these would have differed without the IAR Fraud. This will enable us to assess how much better off the Company (and therefore Shareholders) would have been without the IAR Fraud.
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