THE former owners of one of the UK’s last family-owned department stores are taking Royal Bank of Scotland to court claiming they were misled into putting their house up as security for the failing business.
Lady Georgina Bullough – the daughter of the late Earl of Mansfield – and her husband John signed three personal guarantees totalling £1.75 million with RBS as they fought to secure the future of McEwens of Perth.
They claim they were told by an RBS adviser before they signed the first guarantee that it was “just a box ticking exercise, the bank will not take your home”.
The bank also transferred the struggling business to its controversial Global Restructuring Group (GRG) which, according to the former owners, heaped “further pressure” on it.
The bank is already facing legal action over the activities of the group after small firms claim to have been deliberately driven to the wall so the bank could strip their assets. After McEwens of Perth collapsed in 2016 with debts of almost £4.3m, RBS demanded the Bulloughs pay the money still outstanding or face losing their home.
The couple have now gone to the Court of Session to ask for an interdict to stop RBS taking possession of Logie House in Perthshire. They also want a decree of reduction on two of the three guarantees because they claim RBS made mistakes and “misrepresentations” when the agreements were drawn up.
Papers lodged with the court state: “The pursuers seek an interdict to prevent the defenders from applying to the sheriff court for a warrant to exercise the remedies available to heritable creditors including repossession and sale of their home.”
McEwens of Perth was bought by the Bullough family in 1982, more than 100 years after its flagship store opened.
The family banked with RBS and forged such a “close” bond with Ken Anderson, their designated relationship manager, that he “almost served as a de facto board member”. The business had an overdraft of £450,000, which, they say, Mr Anderson would allow to exceed £1m as a temporary measure to cover seasonal fluctuations in trade. But the company had to be refinanced in January 2008 when John and Lady Bullough took over after a management buy-out facilitated by a firm called McEwens Direct.
The couple “expressed their unease” to Mr Anderson after being asked to sign a £750,000 personal guarantee. Personal guarantees are used to help business owners secure finance by agreeing that they will pay up if the firm defaults. The Bulloughs claim they were reassured by Mr Anderson – who was “highly trusted” by the family – that the bank would not take their home, which had been given as security.
The court papers state: “Mr Anderson sought to reassure the pursuers with words to the effect that the first personal guarantee was ‘just a box-ticking exercise, the bank will not take your home’.
“Mr Anderson’s representations to the pursuers were false. The signing of the first personal guarantee was not ‘just a box-ticking exercise’ as part of the management buy-out but an important matter that exposed the pursuers to personal risk in the event of the group’s default.
“In the event of a default, the defenders’ practice was that it would take whatever steps necessary to minimise its loss including calling up personal securities without first exhausting the group’s securities.
“In these circumstances Mr Anderson failed to advise the pursuers of the true consequences and risks of signing the first personal guarantee.”
Mr Bullough claims that he would not have signed the first personal guarantee if he had realised the risk and instead would have renegotiated the management buy-out. Soon after the buy-out, McEwens of Perth started suffering “financial pressures” because its overdraft had been reduced to £250,000.
The firm’s turnover also fell by £1m during “unprecedented” snow and cold weather in the winters of 2009 and 2010.
The bank asked the Bulloughs to sign a second personal guarantee of £100,000 in October 2010. McEwens also breached its loan covenants to RBS in 2010 so the bank transferred the company to its Global Restructuring Group.
The GRG then cancelled the firm’s long-term financing arrangements and converted its borrowing to short-term facilities, adding to the instability it faced.
They continued to struggle and was “days from collapse” when it asked the bank for a £250,000 cash flow injection in spring 2011. RBS – which by then had allocated McEwens a new relationship manager – agreed on condition that it received a £50,000 arrangement fee and the Bulloughs signed a third personal guarantee for £906,000. But McEwens of Perth went into administration in March 2016 after suffering further trading losses. Administrators KPMG said it owed £3.44m to RBS when it went under.
The flagship store in Perth and a second property owned by the business were sold for a combined £675,000 in March this year. The bank then demanded payment of all three personal guarantees plus interest, and told the Bulloughs if they failed to pay then they would go after the property used as security.
The couple have offered to pay the second guarantee of £100,000. But they claim they are entitled to a decree of reduction on the first and third personal guarantees. The case has been listed for a four-day proof hearing at the Court of Session next June.
RBS said: “The bank believes it has a strong defence to these claims and will contest them vigorously in court.”
Cat MacLean, partner and head of dispute resolution at MBM Commercial, the law firm representing the Bulloughs, said: “I can advise that this case relates to the period when McEwens of Perth Limited were in RBS’ Global Restructuring Group.
“We cannot comment any further.”
McEwens of Perth opened its flagship store as a women’s fashion retailer in 1868.
The shop had its own tailors making made-to-measure clothes to “satisfy the fashion requirements of Perthshire ladies”.
It later became a traditional department store, selling men’s clothes, cosmetics and homeware.
The Bullough family bought the business in 1982 and expanded it into a small chain with outlets in Ballater, Inverness and Oban.
When the Ballater store relocated in 2007, it was opened by Prince Charles and the Duchess of Rothesay.
But the Inverness store was closed as a cost-cutting measure in 2013 and the remaining stores shut down in 2016 with the loss of 110 jobs.
Independent retailer Beales has now taken over the former McEwens of Perth building on St John Street.
Global Restructuring Group under attack
Owners of failed firms once handled by the Royal Bank of Scotland’s notorious Global Restructuring Group have accused them of driving their business to the wall.
Neil Mitchell, a businessman whose software company went bust after it was transferred to GRG, has called for a joint action against the bank.
He said: “It’s the only way that we can get the government and the board of the bank to listen.”
GRG was promoted as a specialist “turnaround” service to help struggling businesses and more than 12,000 RBS customers were signed over to it between 2007 and 2012. An independent review carried out for the Financial Conduct Authority found that “in some areas the inappropriate treatment of customers was widespread and systematic”.
In January, the Treasury Select Committee published an internal GRG memo from 2009 which stated that staff sometimes “need to let customers hang themselves”.
RBS chief executive Ross McEwan was later accused of “withholding information” from the committee about whether police were probing any criminal allegations relating to GRG.
The FCA found no evidence was found that RBS transferred “otherwise viable” small and medium (SME) businesses so it could profit from them going under.
But it said: “GRG did not appear to recognise the emotional stress suffered by SME customers in difficult personal circumstances, who were not only losing their business and income but, in some cases where it was held as security by RBS, their family home as well.”
Mr Mitchell, who founded the campaigning organisation Banks Claims Group, is seeking a judicial review into the watchdog’s decision not to take disciplinary sanctions against those behind GRG.
He said customers being pushed into signing personal guarantees was a “common element” among those who lost their businesses.
He added: “The guarantee for every small or medium sized business owner in the country is usually the family home. They take the houses off them by forced repossessions and that renders business people homeless. It splits families.
“The victims were made to think that they were a business failure.”