Amigo hoping the judge will be a friend
But occasionally, their interests can be overridden by other factors and circumstances.
That happened this week in the case of Amigo, the guarantor loan company that as recently as 2018 had floated on the London stock exchange with a valuation of £1.3 billion.
The business lent money to borrowers at interest rates of 49.9% APR with a named guarantor who would ensure repayments were made or that they would have to make the payments themselves.
While very profitable, the company also received a lot of complaints about mis-selling and was ultimately forced to repay compensation to thousands of claimants who successfully argued that they should not have been sold unaffordable products.
Amigo decided that to best draw a line under the matter, they would pursue a scheme of arrangement to settle the claims and repay creditors at a reduced level.
Under the proposal the company would have set aside up to £35 million in cash for refunds along with a proportion of its profit for the next four years.
The Financial Conduct Authority objected and brought the case to court on behalf of the claimants. They argued that the proposal would short change customers and want a fairer solution to be enacted.
They said: “We are now carefully examining the court’s judgement and the Amigo’s response.”
“We had significant concerns about schemes of arrangement being used by firms to unfairly avoid paying customer redress. This is an important judgement in that respect and any firm considering a scheme of arrangement should take it into consideration.”
The judge, Mr Justice Miles, said he accepted the view of the FCA that borrowers had not been given the necessary information to understand “the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake.”
He also agreed with the FCA that, despite protestations to the contrary, the business valued at approximately £44 million, was not in any imminent danger of collapse and urged both sides to come to a fairer compromise deal.
He said: “It seems to me improbable, given the evidence of surplus value, that the directors of an FCA-regulated listed group would simply force the group into insolvency without carefully assessing further, revised, restructuring proposals.”
Gary Jennison, Chief Executive of Amigo, said he was incredibly disappointed and this was shared with analysts who noted that 95% of Amigo creditors who voted for the scheme had supported it.
Amigo shares fell after the judgement as did shares in Provident who are also planning a similar scheme of arrangement to compensate claimants of their scheme.
Provident have a creditors vote scheduled for July 19th with a High Court hearing on July 30th which will rule on the scheme and whether their proposed £50 million fund is adequate.
Like Amigo, they have stated that if their proposal is blocked then their consumer credit division might have to go into administration or liquidation as a result.
If your business owes money to creditors and you’re worried that they will have the whip hand when the suspension on winding up petitions and other creditor actions ends on June 30th – get in touch with us.
We offer directors and business owners a free, initial consultation where we can get a better understanding of your situation.
Once we do, we can advise you on your best options to either restructure and rescue your business or other ways you can satisfy your creditors without having to take an expensive gamble that might not pay off.