Building society scandal: Millions of savings were invested in 'foolhardy' loans to small firms, court hears

Several major building societies including Leeds, Nottingham and Newcastle introduced hundreds of customers to unregulated advisers who sold them family trusts linked to properties and investment schemes for their savings which have since become mired in financial complications.

The assets – including £44m worth of invested savings – ultimately ended up in the hands of a firm called Philips Trust Corporation (PTC), which collapsed into administration in 2022.

Philips Trust had placed the savings with four “investment management” companies but administrator Kroll has been struggling to recover much of the cash owed – leaving victims fearing their money will never be returned.

In a court hearing yesterday, Kroll was granted orders to place two entities belonging to one of the investment firms, Berkeley Rutherford, into administration as part of ongoing efforts to make recoveries.

A judge yesterday said the Berkeley Rutherford special purpose vehicles were “hopelessly insolvent” as they had used their share of the money to offer “high risk” loans to a variety of small businesses which have since folded.

At the start of the hearing, Simon Passfield, a barrister representing Kroll, withdrew a third application relating to an entity called Cubefunder.

He said PTC had given £700,000 to Cubefunder, with the money used to make intercompany loans to a parent company called Tallaght. He said Tallaght has paid £650,000 to settle the claim which he described as “an excellent recovery in all the circumstances”.

Mr Passfield said the two other entities Kroll was seeking to place into administration were known as BR2 and BR3 and were wholly-owned subsidiaries of Berkeley Rutherford. Kroll has previously described the latter company as a firm which makes short-term loans to small and medium-sized businesses.

He said Philips Trust had placed £536,000 with BR2 and £2.39m with BR3.

Mr Passfield said: "Those monies were used to make onward loans which are all in default. Demands were made as long ago as July 28, 2022 and haven’t been complied with.”

The outstanding money was £466,000, owed by BR2 and £2.68m owed by BR3.

Mr Passfield said the entities had invested in companies including a scaffolding firm and a business called The Sausage Revolution Limited.

He said: "It seems on its face that these were genuine, albeit foolhardy, loans and investments. Some of the onward investments are to third party companies but all ones that regrettably appear to have collapsed or are themselves insolvent.

“It is inherent in the nature of the business model that these were risky loans and profit was supposed to be generated by the higher interest that could be earned on lending it out. But there is inevitably the risk within that the entities you are lending to are not going to be able to pay up.”

Berkeley Rutherford was not represented during the hearing. Mr Passfield said that its parent company Thirlmere Financial had confirmed in writing it didn’t object to the administration applications.

Judge Raquel Agnello KC of the Deputy Insolvency and Companies Court, said: “It appears both BR2 and BR3 are hopelessly insolvent.

"The loans were high risk loans at high interest rates for which no security was provided. Many of them appear to be unrealisable now.”

Last year, Leader of the House of Commons Penny Mordaunt described the Philips Trust matter as an “extremely disturbing and important case”.