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By Laura Noonan
LONDON, Aug 8 (Reuters) - Royal Bank of Scotland is shutting its controversial turnaround division and the two most senior executives who ran it are to leave the bank, a person familiar with the situation said on Friday.
Tasked with recovering loans from customers struggling to pay, the global restructuring group came under fire last year when UK government advisor Lawrence Tomlinson accused the division of pushing small businesses to collapse and then profiting from their demise.
An independent report commissioned by RBS, which is 81 percent owned by the government, cleared the bank of attempting to defraud its customers. But RBS nonetheless said it would change the way it dealt with borrowers in distress and outlined new practices.
Staff were informed of the restructuring group's closure by email on Friday, the source said. The email also said that Derek Sach, who heads the division, and Aubrey Adams, who leads its property division, will both leave the bank on March 31, 2015.
Sach was criticised by a UK parliamentary committee for insisting that the restructuring group was not a profit centre when the bank later wrote to the committee accepting the use of the term.
Laura Barlow, who joined RBS in 2009, has been appointed to head up RBS's new restructuring unit, which will be more integrated with the main bank than the restructuring group was, the source said. Customers will not see any change, beyond the strategies already outlined by RBS, he added.
The bank declined to comment and would not say whether any severance payments would be made to Sach or Adams. The Federation of Small Businesses also declined to comment.
The restructuring group swelled with loans at the height of the financial crisis, but has reduced in size dramatically as the economy improved and some assets were transferred into a newly created internal bad bank, RBS Capital Resolution (RCR), earlier this year.
RCR had loans with an original value of 30 billion pounds ($50.4 billion) at the end of June, the bank's half-year financial statements showed. RBS would not say what value of loans was left at the restructuring group.
1 US dollar = 0.5951 British pound Reporting By Laura Noonan; Editing by Alex Smith and Erica Billingham