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Summary
- The London High Court refused to approve Amigo Holding’s customer compensation scheme last week.
- The company’s chief executive said that in the absence of a scheme, Amigo would face insolvency because it would not be able to settle its customer compensation claims.
- On 11 May, the FCA had sent a letter to Amigo which said that the terms of its rescue scheme were unfair to the creditors.
The share price of Amigo Holdings Plc (LON: AMGO) once again suffered a sharp drop on Tuesday after the loan providing company said that it would be filing for insolvency as the court had rejected its rescue plan last week.
The company shares (market capitalisation: £39.45 million) were down 12.05 per cent to GBX 7.30 in the early trading hours on 1 June.
Justice Miles, the London High Court’s judge, had rejected the company’s plan that could have slashed the compensation payouts to customers for mis-selling loans. Amigo’s company statement released on 1 June said that it would not appeal the ruling.
Gary Jennison, the company’s chief executive, further said that in the absence of a scheme, Amigo would face insolvency because it would not be able to settle its customer compensation claims. Moreover, in such a scenario, it won’t be able to meet the funding obligations of its secured creditors, he added.
Amigo was also planning to postpone its financial results for the year ended March 2021, the company statement said. The results are anticipated to be released by 12 July.
The subprime lender provides loans to customers with a poor credit score in case they have a friend or a family member who agrees to repay the debt, in case they are unable to do it.
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Subprime lenders under stress
Subprime lenders in the UK have been impacted by the regulatory curbs in recent years. This clampdown has led to a series of claims, along with compensation payouts in certain cases for mis-selling the loans. More specifically, the government rules around affordability checks were changed last year, which impacted many players. The coronavirus pandemic has added to the pressure on these lenders.
For instance, Provident Financial, the doorstep lender, had also tried to put together a similar compensation scheme this March. The scheme did not get a nod from the regulators, and in May, the lender decided to withdraw from doorstep lending after being in the business for 140 years.
Amigo Holdings has about 137,000 customers at present. The firm has lent to close to 500,000 people since as long as the year 2005.
The lender had recently applied to the London High Court for permission to cap the payouts, submitting that a rush in claims was threatening it with a collapse.
Earlier last month, the company informed that it would be liaising with the British regulator – the Financial Conduct Authority (FCA), so that its concerns are addressed in a timely manner. However, on 11 May the FCA sent a letter to Amigo which said that the terms of its rescue scheme were unfair to the creditors.
In December, the subprime lender had said that it would be launching a scheme of arrangement for settling all the claims regarding customer redressal due to unaffordable lending.
It had clarified that while it may not be able to pay all the claims in full, the scheme would be the best vehicle to address these claims.
Also Read: Finance Sector to Play Crucial Role in UK Recovery post-COVID, says TheCityUK report
