Hotelier claims bank forced him to sell too cheap because of mounting property debt
When Donald Macdonald started his eponymous hotel chain in 1990, it would go on to be the UK’s biggest with a number of business interests across the UK and Spain. In 2003 he used funding from Bank of Scotland to help him effect a £590 million management buyout of the listed company and by 2009 Lloyds Banking Group became involved in MacDonald’s property loans – buying them in effect with its acquisition of the merged Halfiax/BoS entity, HBOS.
And now Lloyds is bracing for a legal battle involving £120 million, as the Scottish hotel magnate accuses the bank of forcing him to sell off parts of his hotel empire at significantly reduced prices. The case, which is set to go to trial next week, pits Macdonald against Lloyds’ Bank of Scotland. The tycoon claims he was “seriously wronged” by the lender.
Macdonald claims that he was pressured by the bank to sell several of his hotels at knockdown prices - his debt reached £620 million in 2005.
Peter Cummings, a well-known figure in the HBOS scandal and not directly accused of wrongdoing in this case, is mentioned in connection with negotiations surrounding the sale of a site called Botley Park. Macdonald alleges that the property, which was sold to Linden Homes for £58.6 million, should have fetched between £80 million and £120 million, according to an adviser.
Cummings, who was fined £500,000 and banned from the City for life by the Financial Services Authority for his role in risky HBOS lending, features in this case due to his past involvement.
Also named in Bank of Scotland’s defence is William Rucker, a former adviser to Macdonald and now chairman of British Land and investment firm ICG. Although it is unclear if Cummings or Rucker will testify, the case focuses on the alleged losses Macdonald claims he suffered, estimated between £101.9 million and £118.5 million.
The legal action centres around Macdonald’s claim that his company was unfairly pressured by Lloyds, particularly after the bank took over HBOS in 2009. In the years following, Lloyds offloaded billions of pounds of property loans, including those associated with Macdonald Hotels.
Lloyds, however, disputes the claim, stating that there was mutual agreement as early as 2010 that Macdonald Hotels needed to reduce its debt load. According to the bank, it was the hotel chain’s responsibility to decide which assets to sell in order to repay its loans.
A Lloyds spokesperson said, “We do not believe that the case has any merit and dispute Macdonald Hotels Limited’s claim. As the proceedings are ongoing, it would be inappropriate to comment further.”
Background and Financial Challenges
Macdonald Hotels has experienced significant financial pressures in recent years. In 2019, an attempt to sell the majority of its hotel properties to a private equity investor fell through, leaving the company in need of a new buyer or a refinancing deal for nearly £200 million in loans.A previous refinancing effort with Lloyds in 2014 had helped the company manage its debt, but more restructuring was needed.
Donald Macdonald had temporarily returned as CEO in 2014 following the departure of David Guile, who had led the company through six years of restructuring. Macdonald’s re-assumption of leadership was intended to help steer the company through its financial challenges, as it sought to reduce its debt burden while maintaining operations across its 45 hotels.
In 2020, Macdonald Hotels faced fresh challenges, including redundancies and ongoing efforts to sell properties to manage its debt load. In a failed deal from June 2019, the company had planned to sell 27 of its 45 hotels, intending to use the proceeds to repay £195 million of loans to Lloyds. After the sale fell through, Macdonald Hotels decided to sell two hotels instead, which, it stated, would “substantially reduce the group’s borrowings.” Late that year, the group appointed ex-Jamie Oliver director Tara O’Neill as Chief Executive.
The same year Macdonald Hotels faced controversy when it briefly opened a Chick-fil-A restaurant at its Aviemore hotel, which led to public backlash over the fast-food chain’s past donations to anti-LGBT organizations. A spokesperson for Macdonald Hotels emphasized that the company values equality and respect in all of its dealings, and the Chick-fil-A outlet closed after just three months.
Looking Ahead
Despite these challenges, Macdonald Hotels remains under the control of the Macdonald family, and the company continues to explore various refinancing options. With the upcoming High Court trial, the future of Macdonald’s hotel empire, as well as its financial stability, could hinge on the outcome of this legal battle.
Both Macdonald Hotels and Lloyds Banking Group remain entrenched in their respective positions. A spokesperson for Macdonald Hotels stated, “We believe we were seriously wronged by Lloyds Bank since its takeover of Bank of Scotland in 2009. It is regrettable that we had no other option but to initiate legal proceedings, and we trust the court to resolve this matter.”
