Lloyd Fraser's parent company Barbican Capital has accused Close Brothers bank of ‘bullying tactics' which it says forced the group into an ‘unnecessary' administration.
Lloyd Fraser is one of the UK's top milk hauliers, which collects milk for companies including Arla, Muller, Meadow and Wyke Farms.
Farmers Guardian reported the group had entered administration on Friday (September 22) with some farmers left without milk being collected.
A spokesperson for Barbican Capital said: "Barbican Capital is contesting the decision to put the Lloyd Fraser group of companies into administration as a consequence of the actions of Close Brothers Limited and Close Invoice Finance Limited."
It said its immediate priority was to ensure employees and customers were impacted ‘as little as possible'.
"Once we have done so, we will look to Close to seek compensation for the material losses that they have caused to the Lloyd Fraser group for putting it into administration when it was wholly unnecessary," it said.
"Barbican Capital, the owner of the Lloyds Fraser group of companies, is appalled by the actions of Close Brothers Limited and Close Invoice Finance Limited which, we believe, has led to our group of companies being incorrectly placed into administration and unnecessarily losing related licenses required to meet our customers' needs."
It said it had had a major impact on milk supplies in the UK, as well as its to its employees and customers.
"This goes way beyond the closure of a bank account. This is ‘debanking' on a terrifying scale which will have an impact on hundreds of employees, the UK's hard working milk farmers and the nation's industry.
"These communities have felt the unnecessary consequences of what we consider to be major flaws in Close's IDEAL client interface portal, which we recently discovered caused huge financial issues for and underfunded our business.
"On identifying these problems Lloyd Fraser understandably looked to replace Close as our banking partner. This was communicated to Close and an orderly handover was agreed for the end of September. As part of this transition, any monies owed to Close by any Lloyd Fraser company would be discharged in full on or around September 29 2023."
However, it said on September 1 without warning Close had refused to operate its facility as normal which led to the group of companies being put into administration.
"We believe that these tactics from the bank are tantamount to bullying and are aimed at a group of companies which were on the upward trajectory, creating jobs and meeting our customers' needs. Close's actions and the subsequent administration from those actions have left 700 committed Lloyd Fraser employees uncertain as to whether they will have a job next week.
"With the actions of parts of the banking sector already under the spotlight, it is surprising that Close is willing to adopt such oppressive tactics. At a time when confidence in the banking sector is low, it is a major concern that subsidiaries of a London Stock Exchange listed company that is regulated by the Financial Conduct Authority is able to act in such a way."
It said it now risks a default on a Covid loan from the British Business Bank.
"With all of these factors in mind we have engaged a legal team to fight this administration and seek justice for the actions of Close."
Close Brothers have been contacted for comment.