The Lloyds Banking Group has won its appeal in the Supreme Court against paying £3.5m back to the Lloyds TSB Foundation for Scotland.
The Foundation had itself won an appeal only a year ago against an earlier attempt by its benefactor to avoid paying the sum of £3.5m, equating to one per cent of its pre-tax profits, but favour has now swung back to the Group – and there can be no appeal.
The decision by the Supreme Court yesterday marks only the latest twist in a dispute between the two organisations that goes back to September 2010. Then, the Group gave the Foundation £38,920, which the latter believed to be a breach of their covenant, and far short of the £3.5m it said it was due.
The Group justified this sum by saying that its merger with Halifax Bank of Scotland (HBOS) included £11.2bn of ineligible negative goodwill (when the price paid for an acquisition is less than the fair value of its net assets) in its accounts, leaving no actual pre-tax profit from which the Foundation could take a percentage. In such a situation, the covanetant states that the Group pay only a nominal amount: £38,920.
The Foundation failed in its first appeal, in June 2011, but found success in the aforementioned attempt in January 2012. Now, the Court has favoured the Group, and by law appeal is not open to either party.
Lloyds Foundation: 'dismayed and bitterly disappointed'
A spokeswoman for Lloyds TSB Foundation for Scotland told civilsociety.co.uk that this case ultimately hinged on where in Lloyds Banking Group's accounts it could take the figure for its profit.
The Supreme Court has finally decided that the Group can legitimately do so from the negative goodwill which emerged from its purchase of HBOS in 2008, a deal that lost Lloyds £6.2bn.
“After over four years trying to resolve this situation, trustees are dismayed and bitterly disappointed by the decision by the Supreme Court, especially after the Scottish Appeal Court had ruled in our favour," said Mary Craig, chief executive of the Foundation. "Regrettably, there is no other appeal route open to us and, reluctantly, we must accept the decision.
Craig said the Foundation had "no alternative but to participate in the appeal process" in a dispute which had been made lengthy by Lloyds Banking Group which, “On various occasions...had the opportunity to bring matters to a close, particularly when the Inner House of the Court of Session vindicated the position of the Foundation".
“However, it is now time for the Foundation to look forward," she said, advising that the formal covenant will end in 2019 after the Banking Group invoked its right to terminate it in 2010.
"Since then, trustees have been actively considering how best to secure long term funds for the Foundation, irrespective of the outcome of this court action.
"With the uncertainty caused by this dispute now behind us, we will be able to turn our full attention to detailed planning for the future," said Craig.
Lloyds Banking Group: ‘pleased’
A spokeswoman for the Group said: "We are pleased with yesterday's decision from the Supreme Court. It is disappointing that we could not reach an agreement with the Lloyds TSB Foundation for Scotland at the outset as we did with the Group's other Foundations.
“We are proud of our track record as one of the largest corporate funders of charities in the UK, including Scotland. Lloyds Banking Group has channelled over £82m over the last 26 years to the Lloyds TSB Foundation for Scotland. The Bank of Scotland Foundation is now firmly established and supporting communities throughout the country."
