Sir, Northern Rock shareholders may portray themselves as victims but it is they who appointed their directors and, be it actively or passively, endorsed the imprudent, high-risk strategy that caused this disaster.

There is something seriously wrong when, in pursuance of their own financial interests, these shareholders (unlike their directors) may with impunity act in a manner detrimental to the interests of their creditors by blocking any takeover that they consider may fail to maximise share value. Yet without the intervention of their now largest creditor, the UK taxpayer, their shares would be valueless.

Nothing would change their tune faster than emergency legislation to remove the limited-liability status of shareholders who obstruct takeovers, when such takeovers are essential to protect the threatened interests of their creditors.

Michael Sobey
New Deer, Aberdeenshire

Sir, Since August Northern Rock appears to have been insolvent, and able to stay afloat as a going concern only by relying on a loan facility of £20 billion (or more) from the Bank of England at the behest of the Treasury. Without that loan, it would have had to cease trading, as trading while insolvent is unlawful.

It is unclear on what terms the Bank has lent money to Northern Rock. If it is repayable on demand, or within a very short timescale, that would not remedy the fundamental actual or potential insolvency of the company and may even make it worse, given the penal rates of interest being charged.

There may be a serious risk that all the Bank has done is to enable Northern Rock to continue to trade unlawfully by providing it with a flimsy, uncertain line of credit. Should that be the case, the loan from the Bank may be irrecoverable in law, having been made for the illegal purpose of assisting Northern Rock to continue trading while insolvent. Points similar to this arose in litigation after the secondary banking collapse in 1973.

Stanley Brodie, QC
London EC4

Sir, Northern Rock was solvent but had got caught up in a cash crisis through factors outside its control.

Modern society and the whole banking system depends on public confidence in the credit system. It is a fine balance that can easily be upset by sensationalised reporting. Every bank in the world would fail if all the depositors demanded back their money in a panic.

In 1973 NatWest was in similar trouble due to overlending to the property market and a lifeboat was set up to save it. Because it was not publicised there was no run on the bank. There are times when the press must be muzzled in the national interest, and Northern Rock was one of them. The Government has acted quite properly in the nation’s interests.

Howard D. Sherrington
Manchester

Explore Letters

• Feedback