Two NSW brothers were emotionally and financially devastated when the hotel business they bought for $1.6 million in 2006 was sold by BankWest’s receivers in 2015 for $525,000, the financial services royal commission has heard.

Brendan Stanford had to leave the witness box when he was describing the effects on his brother Michael of the financial trauma they went through in the years before the hotel was sold. The hotel was situated at Portland, between Katoomba and Bathurst, west of Sydney.

“Are you able to explain to the Commissioner what was the effect on your brother of the selling of the hotel?” counsel assisting Michael Hodge asked.

Mr Stanford was emotional but silent and Commissioner Kenneth Hayne called a halt to proceedings allowing Mr Stanford to leave the stand.

When he returned a few minutes later he said: “I saw him [brother Michael] struggle … I saw him depressed for … a few years.”

The purchase of the pub was funded by a $1.2 million loan from BankWest and contributions from the brothers. The loan was 75 per cent of the purchase price, the maximum allowed by the bank. The brothers had earlier owned a Hunter Valley hotel, which Mr Stanford said had been very successful and sold when they wanted to take a break.

The pub performed well at first but was hit by the knock-on effects of the financial crisis and smoking bans from 2010. They continued to pay their loans but fell behind in payments to the ATO, which introduced a payment plan for it.

The bank started to be concerned about their performance and brought in investigating accountants. The results were not shared with the brothers and they were told by the bank that the pub’s value had fallen to $250,000.

They began to worry they would be sold up by BankWest. “It seems we were easy targets,” he said, because pubs had valuable assets in the form of their poker machine licences but low cashflow.

They tried to boost performance but that was not easy to do.

“It takes its toll … you are little battlers in a small country pub and you can’t turn things that quickly …You have to work towards increasing turnover … It takes 12 months to realise some things to put plans into action and actually get some traction and move forward with it.”

“[Their bank manager] wasn’t forthcoming about anything that [might have been] a positive way out. Trading our way out wasn’t going to be an option.

“To see all that work you have done under extended period … To have the rug pulled out from under you, I think it affected him more than me even though I was going through a different set of circumstances myself.”

In 2012 Mr Standford stepped back from his involvement with the pub as he was being treated for leukaemia.

The brothers lodged a complaint with the Financial Ombudsman Service about their treatment by the bank, but by 2014 they put the pub on the market to try to salvage their situation.

Around that time Michael Stanford’s partner offered to help them as she believed in the business.

They made a proposal to continue to make repayments, with her support, that would have involved them holding on for three to five years.

Bankwest refused the proposal. Receivers were appointed and have since sold it. BankWest has not pursued Mr Standford for money owed.