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© The Campaign for Regulation of Asset Based Finance. All views expressed are the opinion of the campaign except where specifically stated.

This campaign is not supported by or linked in any way to the asset based finance industry.

The Campaign for Regulation of Asset Based Finance

£5billion Clawback Tax on the Asset Based Finance Industry

The Clawback Tax is proposed for the unregulated £260bn asset based finance industry.  The tax is for the income made by the industry through excessive termination fees and charges as secured creditors when their clients go into administration.  A number of those companies would have been put into administration by the same finance company that will profit at the expense of the unsecured creditors.   

The asset based finance industry works within the confines of the Enterprise Act 2002 which was created to rescue viable companies through administration and allow the finance industry to fund business through floating or fixed charges secured against invoices or assets.  

This allows finance companies to lend money against their clients’ invoices and in the event of them going into administration or liquidation allows them to recoup there money.   The issue is that the finance company as the secured creditor recoups not only the money lent but all the outstanding unpaid invoices and excessive termination fees.

It was not envisaged that the finance companies would profiteer at the expense of HMRC or other unsecured creditors, often small businesses that simply cannot afford to lose at the expense of rich bankers.

HMRC are normally the largest single creditor and loser at the expense of asset based finance companies.  

This tax does even take into consideration the redundancy payments and benefit payments that the government has to pay on top of the multi billion pound losses of HMRC when companies go into administration.

It is not unknown for finance companies to make a profit of between 500% to 1,000%, compared to what had been lent to their former client.   Amazingly, banks have been known to apply collection fees even when they had not started to lend money to their client.

When asked why their employer apply termination fees, one asset based finance industry employee said: “It is better for us to get the money than HMRC.”

An example:

If the invoice ledger value was £1m, the asset based financier would have forwarded £750,000 (75%) to the company but would still have £1m to collect from the customers.  In normal circumstances if a business closed they would collect in the £1m and hand over £250,000 to the creditors.

However in the case where the company goes into administration (and this is the norm for asset based finance industry) they would “charge” around £100,000 termination fee and then the collect out fee of approx. 20% of the £1m equalling £200,000, a total of £300,000.

This is totally legal and the asset based company will make around £300,000 from an administration, surprisingly even if they had put the company into administration.  The main loser is HMRC who would have received the £200-250,000 as the main creditor.

All that is being proposed through the Clawback Tax is that the industry returns the money that it has received in excess of what it had loaned by questionable practices.  

The money being made this way by the asset based finance industry is quite legal.