Motor sector business owners could see their personal property put at risk by a House of Lords ruling on banking practices.

According to the ruling, banks will no longer be the primary recipients of money removed from a collapsed business. Creditors including employees, as well as the Inland Revenue, will be the first to receive funds owed.

The ruling is effective immediately, and overturns the existing system, where banks had first call on money recovered from a collapsed business.

Matthew Carrington, Retail Motor Industry Federation chief executive, believes that banks could become more forceful as a result: “Business loan rates could rise because of the additional risk, and banks may call in problem loans more quickly. Banks could also be forced to chase the individual who acted as guarantor to the business so they can recoup their losses.

“Banks may have to force them to surrender personal assets, including houses and cars.”

The ruling is the result of a legal case in which the NatWest Bank tried to establish its right to seize the assets of a business customer that collapsed. The case was taken to the Lords by the Crown.