Farepak victims to get compensation of £8m
Savers who lost money when the hamper firm Farepak collapsed are to receive compensation totalling £8m from Lloyds Banking Group.
Some 116,400 families lost money when the firm – which offered consumers the opportunity to spread the cost of Christmas by making regular payments which were converted into vouchers or hampers – went into administration in 2006, wiping out almost £40m in the process.
Farepak’s bank HBOS, which is now part of the Lloyds Banking group, has been heavily criticised for its handling of the savers’ money, after it emerged that it had refused a request to ringfence the cash and continued to take deposits when it knew Farepak was in serious trouble.
Customers had saved an average of £400 each, but eventually received just 15p in the £1 as compensation. The new fund is the equivalent of around £66 for each saver, although it is not yet clear how it will be distributed.
The announcement of an ex-gratia payment of £8m follows the collapse in June of a high court case against Farepak’s directors taken by the Insolvency Service.
The judge who heard the case, Mr Justice Peter Smith, was critical of HBOS, saying it had benefited to the tune of £10m in the final months of the company’s existence. “The bank had, as I have said, almost a pride in their strong attitude, but they went beyond that, of course, because they in effect forced the directors to carry on in September/October collecting deposits … at a time when they believed [the bank would go bust],” he added.
Following Farepak’s demise, HBOS made a £2m payment into the compensation fund; the new payment will mean it has reimbursed the £10m referred to by the judge. Lloyds TSB said it was also meeting its own legal fees for the failed court case, rather than reclaiming around £1m to cover them from the liquidators.
Lloyds TSB is working with the Department for Business to decide how the compensation will be delivered to those who out. It is not known yet if the money will be split equally between Farepak’s customers, or based on how much they had saved.
A statement from Lloyds Banking Group said: “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.
“We have a crucial role to play in supporting business and the communities in which we operate. In making our decision we have looked carefully at the very specific circumstances surrounding the failure of Farepak and the economic and social impact resulting from it.”
On 12 July representatives of the Farepak Victims Committee are set to meet the business secretary, Vince Cable, to put the case for better regulation of the Christmas savings club industry.
Currently cash held in such schemes is not covered by the Financial Services Compensation Scheme, meaning consumers who use them have little protection.
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