Cosy relationships between banks and leading law firms are preventing businesses taking legal action to protect themselves from being forced unfairly into bankruptcy, City regulators were told today.

The accusation appears in a hard-hitting report into banks' treatment of businesses in distress. It contains allegations that state-owned Royal Bank of Scotland (RBS) had unnecessarily engineered defaults to move businesses out of local management and into its 'Global Restructuring Group', generating revenue through fees, increased margins and devalued assets.