Company cash ringfencing by banks is illegal, says ex-Dragon

The tactic used by banks to ringfence the cash of troubled companies, which is believed to have played in part in the collapse of wedding gifts firm Wrapit, should be reviewed by the government, former Dragons' Den star Rachel Elnaugh has demanded.

In a much publicised downfall, Wrapit went into administration earlier this month leaving around 60,000 gifts undelivered to disappointed brides and grooms. Peter Gelardi, managing director of the company, said a key factor in its demise was HSBC's decision to withhold £1m of the company's money which he claimed could have been used to fulfil customer orders.

HSBC has defended its actions but writing in her blog, Rachel Elnaugh, a former panellist on BBC TV's Dragons' Den, claimed the practice known as 'bonding' is illegal under current insolvency laws.

Elnaugh herself experienced something similar during the crash of her experience voucher business Red Letter Days in 2005.