Banks too quick to pull plug on struggling firms

The First Minister won the backing of business leaders, who still report “negative experiences” with the financial giants, despite high-profile initiatives to support firms. But banks only step in as a “last resort”, one of the administrators involved in a recent case insisted.

Enterprise minister Fergus Ewing held “urgent talks” with officials from Allied Irish Bank (AIB) last night, amid concerns it acted too quickly in placing Scottish drinks firm Sangs into administration this week.

Mr Salmond said: “It should give each and every one of us the most serious concerns.

“In an economic position such as the one we currently face, I think it’s the very least we can expect that lenders and banks and financial organisations are as supportive as they possibly can be in terms of companies in Scotland.

“If the information which has come into the public domain is anything like accurate, then I think the most serious questions have to be asked.”

Mr Salmond told MSPs it followed concerns raised over the demise of Lanarkshire-based construction firm WJ Harte, which also went into administration this month.

“This is the second time in two weeks that a member has brought a constituency concern which involves the conduct of financial organisations or other people in terms of companies which have been moved into administration,” Mr Salmond said.

The SNP leader drew attention to Sangs’ profitability and lack of exposure and debt, with its administrator insisting it was a “strong business”.

Mr Salmond has warned that the failure of banking to improve the way they lend to firms was a key barrier to economic growth. He said recently the problem of securing credit has been highlighted at “every single economic meeting” he has attended in recent years.

Garry Clark, head of policy at the Scottish Chambers of Commerce, said yesterday that the “extended period of stagnation” in the economy would eventually turn around.

“That means that many viable businesses are likely to face a difficult spell before things start to improve, and it is vital that the banks are there to support businesses through this period,” he said.

“Unfortunately, despite a number of high-level initiatives from the banks aimed at reassuring business, a number of our members continue to report negative experiences with their bank.

“We understand that banks cannot be expected to embark on high-risk lending strategies, but more needs to be done to recognise that good businesses may require additional short-term support to see them through to better times.”

Kenny Webster, the owner of Sangs, which makes the Macb soft drink and employs about 60 people, questioned the haste in which AIB had acted in placing his firm into administration.

Another of his firms, petrol chain Calanike, has been placed into receivership.

Administrator Robin Knight, of Zolfo Cooper, said yesterday: “Our focus in all of these cases is to preserve value in a business. One thing I would say in defence of banks is that it’s in nobody’s interests to put a business into administration – it’s definitely a last resort.

“As far as Sangs and Calanike are concerned, we’ve now been in the businesses for three or four days and we’re very pleased with what we’ve found in those businesses, in terms of the quality of the businesses, the people that work there and the level of customer involvement.

“We’ve managed in both businesses to work very closely with the staff and suppliers and with customers, and we are trading those as businesses as usual. They’re both strong, well-recognised businesses and Sangs, in particular, is a strong, well-recognised brand with a long history, and we’ve had a lot of interest already in the businesses.”

Labour MSP Michael MacMahon raised concerns last week after WJ Harte went from a turnover of more than £100 million a couple of years ago to administration, claiming Royal Bank of Scotland refused to extend its credit.

It is understood that the firm’s credit was extended by the bank, although Mr MacMahon questioned yesterday whether the terms may have been “prohibitive”. The firm employs 700 staff.

Colin Borland, the Federation of Small Businesses’ head of external affairs in Scotland, called for a change of attitude among the banks.

“Each time an employer is forced into administration, it is bad news for the local community and economy,” he said.

“We believe banks have to consider how their policies can affect the wider economy – no matter their circumstances.”

A CBI Scotland spokesman said: “Among the main causes of companies going under are cash-flow difficulties and a failure to seek support at a sufficiently early stage for recovery.

“This is why we have supported the Scottish Government’s efforts to aid firms’ cash flow by settling supplier invoices promptly and the recent creation of their ‘early intervention network’ to better support firms that find themselves in short-term financing difficulties.”