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FCA tells Amigo Loans it will oppose proposed rescue plan in court


Subprime lender Amigo Loans’ share price fell by more than 30 per cent this morning after regulators said they would oppose a rescue plan which would cap compensation payouts in court.

The Financial Conduct Authority previously said in March it had several problems with Amigo’s proposed ‘Scheme of Arrangement’, including over how mis-selling complaints would be assessed by the company and how much complainants would receive, but would not oppose it.

However, in an announcement to the London Stock Exchange, the company said it had received a letter from the FCA stating it felt the scheme was unfair and it planned to oppose it in court.

Guarantor lender Amigo Loans' rescue plan was handed a setback on Tuesday after the FCA said it would oppose its scheme to cap compensation pay outs

Guarantor lender Amigo Loans’ rescue plan was handed a setback on Tuesday after the FCA said it would oppose its scheme to cap compensation pay outs 

The update came despite the fact 74,866 creditors of the company voted in favour of the plan, compared to just 3,862 votes against.

Current and past borrowers had until 5pm on Monday to vote for or against the proposed scheme, while a five-hour virtual meeting is due to be held on Wednesday for those who had not voted online.

The scheme, which was previously given the green light by the High Court in March, requires 50 per cent of all creditors who vote to vote in favour to pass, subject to another court appearance next Wednesday.

‘The votes in favour of the scheme represent approximately 95.1 per cent of the total number of votes cast and approximately 95.7 per cent of the value of the claims of all creditors who have so far voted’, Amigo said.

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The subprime lender, which charges 49.9 per cent APR and requires borrowers to provide a friend or family member to act as a guarantor, had previously been brought to the brink of collapse by mis-selling complaints.

By the end of February, there were 15,052 open complaints at the Financial Ombudsman Service about it, while it received the most complaints of any financial firm in the second half of last year.

More pertinently for the company’s balance sheet, complaints at the ombudsman were being upheld at a rate of 88 per cent between July and December 2020, with all complaints costing it £116.2million.

This led it to run up a pre-tax loss of £81.3million in the nine months to the end of last year, and caused the company to say it would likely be tipped into administration if it did not propose capping compensation claims.

The plan would set aside at least £15million, with an additional £20million plus 15 per cent of pre-tax profits over the next four years possibly added.

However, the proposed scheme has proved controversial, with the FCA and politicians from both parties expressing concern about it and the fact complainants mis-sold unaffordable loans could get little compensation.

Indeed, pay outs could be as little as 5 per cent of what a borrower is owed.

The FCA said it seemed unfair bondholders and shareholders would not be hit by the scheme, with five directors set to receive millions of pounds in bonuses if the share price recovers.

The Tory MP Mel Stride, who chairs the Treasury Select Committee, told The Guardian in March that ‘any situation where directors might receive bonuses on the basis of a cut in fair and reasonable compensation to consumers would clearly be one of significant concern.’

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Amigo has defended its actions, telling the High Court it was unlikely to succeed with a shareholder rights issue to raise more capital.

Prior to today, the plan seemed to be working. Amigo’s share price rose from 16p at the start of March to just under 30p on Monday. However, the shares tanked this morning after the news the FCA had decided to oppose the scheme was made public.

Amigo’s Roger Bennett told the London Stock Exchange: ‘The FCA has decided that it intends to appear at the court sanction hearing through counsel to oppose the sanction of the scheme, even if approved by the requisite majority of the scheme creditors, on the basis that the court cannot be satisfied that the scheme in its current form is fair.

‘The FCA’s letter states that its concerns are in relation to scheme creditors’ claims being significantly reduced whilst other stakeholders such as shareholders are not being asked to contribute, and the terms of the scheme arrangements do not arise out of negotiations with Scheme creditors or any body representative of their interests.’ 

The FCA said the full letter to Amigo was not yet public and could not be shared.

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