HALIFAX Bank of Scotland (HBOS) is refusing to explain why it used two businessmen with a history of misappropriating company funds to offer financial advice to the bank's customers.

The Sunday Herald has established that Lynden Scourfield, a Bank of Scotland executive sacked last year, referred many of the bank's business customers to a London-based management consultancy, Quayside Corporate Services (QCS).

However, two Quayside employees who then advised the struggling firms - Michael Bancroft and Tony Cartwright - had paid back £1.5 million to a publicly listed company in 1991 after misappropriating funds for their own personal use.

MPs are demanding a meeting with HBOS chairman Lord Stevenson about links between the bank and QCS, after several firms complained about the quality of service offered by the firm.

Edinburgh-based HBOS was until recently seen as one of Scotland's most successful companies, but its share price collapsed earlier this year amid the growing crisis affecting the global financial sector. The bank is set to be taken over by Lloyds TSB and part-nationalised.

HBOS is now being asked about the performance of its Bank of Scotland Corporate division in Reading and its former executive, Scourfield, who reportedly oversaw a corporate loan book worth at least £300 million.

Business customers of the bank were put in touch with Scourfield's division if they needed extra funding, ran into financial difficulties or broke the terms of their covenants (credit agreements).

Scourfield, a director at Bank of Scotland Corporate, referred customers to "turnaround specialists" Quayside, which was run by businessman David Mills. Quayside staff either acted as consultants or, where the Bank was especially concerned about a firm, were put on the board of the client company. Scourfield was sacked in early 2007 after the bank discovered millions of pounds in unauthorised loans.

However, Quayside employees Bancroft and Cartwright, whom the bank was using to advise "distressed" firms, have a chequered business past. They were respectively described by Quayside as head of textiles and media, and head of finance at Quayside, A director's report for Ritz Design Group PLC, where Bancroft had been chief executive and Cartwright had been the finance director, show they had resigned after misappropriating company funds in 1991.

The misuse of company resources, for "unauthorised personal expenditure" forced Ritz to withdraw its annual accounts and adjourn its general meeting. Investigations by auditors, according to Ritz documents, led Bancroft to pay back £1,465,000, while Cartwright and another employee handed over £64,000.

Peter Jay, a former director of Ritz, told the Sunday Herald: "I was a director of Ritz Design Group PLC and recall Michael Bancroft was required to repay £1.4m to the company following a Revenue investigation and an investigation by Touche Ross and Co, the company's auditors."

Part of the pair's job as "turnaround" specialists for Quayside was helping HBOS clients put together a business plan. However, many of the companies referred to Quayside went bust, losing the bank millions.

Companies House reports show that Bancroft's record as a director has been far from successful. Of the 15 companies in which he has been a director since 2003 - the year that he joined QCS - nine have been dissolved, two are in liquidation, one is in administration, two are in the process of being struck off, and only one is active.

Cartwright's two post-2003 directorships have ended with both companies going bust.

David Mills, a former director of Quayside, confirmed that Scourfield had referred distressed companies to QCS. He said: "Bank of Scotland, at that point, had a policy of trying to keep the companies going. We were appointed on a number of those occasions to try and support them. We were the opposite of insolvency."

He added: "We were on the panel of people that did investigations and IBRs Independent Business Reviews for the bank. We would have gone in and done an IBR on various companies, they would have rung us and said can you go and see these people, can you do a review of them?'"

Asked about Bancroft's past, he said: "I knew he worked for Ritz Design Group. I knew it had been his business. This is obviously what he told me - I knew he'd been in Ireland for many years ... I thought he had gone there as a tax exile."

Quayside no longer provides turnaround services to the bank.

Six Tory MPs, contacted by businesses that dealt with Scourfield and Quayside, are now demanding a meeting with HBOS chairman Lord Stevenson about the relationship between the bank and QCS.

James Paice, the Tory MP for South East Cambridgeshire, said: "We are very concerned as we have a number of constituent cases with a lot of things in common. We agreed that the first step forward is to seek a meeting with the chairman of HBOS to explore it further."

Bancroft declined to comment about his past. Scourfield and Cartwright could not be reached.

Asked if he was aware that Bancroft and Cartwright had been advising the bank's clients, a spokesman for Bank of Scotland said: "We deal in a sensitive and fair way with all our corporate banking customers, including those experiencing difficulties. It is obviously a very trying time for any individual customer caught up in managing a company experiencing financial difficulties.

"We are very well aware of the stress and concern that such circumstances can generate for our customers. We do everything in our power to reassure customers while, at the same time, helping them to turn around their business.

"We simply cannot comment on individual circumstances. However, we strongly believe that we have acted throughout in a fair and responsible way.

"Turnaround consultants or professional advisors are a recognised resource available to companies who may be facing financial difficulties. It is a normal approach for both companies and the bank to mutually engage with such individuals in an attempt to work through their difficulties.

"In your letter you referenced a former employee of Bank of Scotland who was based in our Reading office. We do not intend to name the individual but can confirm that this colleague left the group some months ago."