Non-compliance by a bank of bank mandates

harleyrider_2

Hi

Not sure if anyone can help, but have a bit of a problem with the bank.

Had a company with a bank mandate that clearly stated two signtures (both equal directors), were required on all cheque payments. However the other Director managed to pay himself via cheques and the bank cashed the cheques without checking the mandate. We went to the bank once we discovered this (retrieved a sample of three cheques and two out of three only had one signature, ie the payees). The bank account was subsequently frozen and now the company has gone out of business, leaving a small debt payable by both directors, which the bank obviously want cleared. Please note the cheques cashed represent approx 50% of the remaining debt.

Now the bank is saying that theses cheques are ok and are deemed to be a company expense and refuse to acknowledge their administration error and take sides of either director. But from our point of view we feel that they are agreeing with the other director who has paid himself these unauthorised payments, which they were as the other director would have disputed them had the cheques ever been given to him to countersign in the first place, especially when he had not received equal payments from the company.

The bank will threaten legal action to repay the debt if not and we feel that it has not acted in good faith of the customer in protecting the account from irregularites or fraud, yet seems to be able to get away with it.

Any help or pointers in the right dirction would be greatly appreciated.

Many thanks in anticipation

MarkyMarkD

Banks do not check the signatures on all cheques. They apply cut-off levels dependent on the level of assessed risk which vary from bank to bank, on the basis that it's cheaper for them to pay up if a cheque is invalid than to check every cheque just in case.

Having said that, if they fail to require cheques to be drawn in accordance with the bank mandate, they have clearly facilitated the theft of company money by the other director.

I don't believe that the bank can enforce the cheques against the company which were not validly drawn as it is their risk and their error. Obviously they CAN seek recovery of the funds from the individual director who wrote them, but that is not your concern.

This Financial Ombudsman case is slightly relevant:

19/04


In 1998 Mr W and his two sisters, Miss W and Mrs J, were given power of attorney over their mother’s affairs. However, some family members made accusations that some of their mother’s money had ‘gone missing’. Mr W therefore contacted the solicitor who had drawn up the power of attorney and asked how he might get access to his mother’s money to ‘keep it safe’. Mrs W was, by this stage, unable to look after her affairs.

The solicitor told Mr W that the power of attorney his mother had signed allowed two of the three named attorneys to operate her accounts. So Mr W and Miss W opened a joint account with the firm and transferred all their mother’s money into it.

A year later, the police approached Mr and Miss W after other members of the family reported ‘fraudulent transactions’ on their mother’s account. The pair were arrested and charged with theft, although the Crown Prosecution Service decided not to pursue the case.

Shortly afterwards, the firm wrote to Mr W and to Miss W, demanding repayment of £5,500 – the amount they had transferred from their mother’s account. The firm had by then refunded the money to their mother’s account, after the other attorney – Mrs J – complained that the firm should not have allowed the transfer without the authorisation of all three attorneys.

We felt that because the firm had refunded the money to Mrs W’s account, Mr W and Miss W were probably not entitled to keep it – even though they were adamant that they had done nothing wrong and they had checked the position with their solicitor and with the firm.

We approached the firm to try to find a compromise solution. The firm said it would accept £4,000 of the £5,500 it had originally claimed from Mr W and Miss W and the pair eventually decided to accept the firm’s proposal.

The relevance is that it also involves cheques being drawn without the necessary number of signatures, and notes that the bank refunded the money to the account and THEN pursued those who had written the cheque for recovery of their loss.

inmypocketnottheirs

I think a bank that has not acted in accordance with it's own mandate would be highly foolish and extremely unlikely to take any action. They would have a flimsy case in court, especially when the mandate has been breached. That will not, of course, prevent them from making threats and demanding payment, but it all comes down to how likely they are to take action.