Can you guarantee your clients safety this year?

Welcome to the first Trade Finance Services bulletin. I propose to keep you up to date with some interesting topics within trade finance, which will have a direct influence on your clients and put your new deals on the right track from the start.

In this edition you will read about unusual and difficult deals which have been successfully completed giving you product and market awareness to help your clients in the future.

The SPECTRUM case ruling (July 2005) will have had, or will have a significant effect on most of your clients. As a result, I put this question to some of your contemporaries at a recent function;

‘Do you have a duty of care to help protect your clients from the adverse actions of their bankers?’

I posed this question because the effects of this ruling, and the Brumark judgment in 2001 in particular, will have probably had the greatest impact on bank lending in living memory.

The case was Spectrum Plus Ltd v National Westminster Bank Plc and the summary is below;

The decision by the House of Lords, resulted in success for the preferential creditors. Spectrum had granted a charge over book debts; the issue was whether the charge was ‘fixed’ or ‘floating’. If it was floating, the preferential creditors would be entitled to be paid before the charge holder, which they would not be if the charge was fixed. This case followed the Privy Council decision in 2001 in the ‘Brumark’ case which held that it is not possible to have a fixed charge on book debts before collection, but which allowed free use of the proceeds by the charge. The House of Lords held that, while it is possible to have a fixed charge over present and future book debts, the charge will be floating if the charger is free to use the proceeds of the collected book debts. This overturns a 1979 High Court decision in Siebe Gorman & Co Ltd v Barclays Bank Plc.

The view is that sooner rather than later traditional overdrafts for most companies will disappear and the decision in this case will accelerate the move towards invoice financing/debt purchasing schemes being the means of financing business in the future

Unfortunately we have recently learnt these cases have already adversely impacted on the banks attitude towards third party funders providing Stock Finance. They will not allow it. The facility will only now be available to companies using independent lenders willing to be flexible on legal issues. Full details in my next letter.

Where book debts were relied on for a significant part of a lender’s security, credit and overdraft limits have been reduced, and PG’s taken. Customers have been persuaded to factor or discount their debts with in-house facilities, often on premium rates.

This brings to mind the old adage of; ‘Don’t put all your eggs in one basket’

Also as a consequence, deal structures in corporate finance have had to change and we think it wise to take note of the potential risks of a one stop shop. Whilst this is perceived as the easy option to completion, perhaps it isn’t the best option for the client. I welcome the opportunity to help you with a safe pair of hands.

I am offering to initially visit your clients free of charge to discover their needs, find a solution and how best to save money with the most appropriate and flexible facility that will work for them, rather than the best facility for the bank!

However, there will be the usual blackmail and tricks in trying to keep your clients tied to the clearers, so a lot will depend on their financial strength but mostly on the managements resolve, if they want some independence and peace of mind.

TFS has a proven track record for providing independent and impartial advice and ‘Health Checks’ for companies who need to review their current lending and future facilities. This service is the only one of its type in the market today.