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amigo loans

In company voluntary arrangements and voluntary liquidations, they have a vote on the proposals at hand so depending on their exposure, can genuinely have an influence on the outcome.

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. 

What is a scheme of arrangement?

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. 

Amigo loans
Amigo loans may well wish that they had one now as any analysis of their current position spells trouble. 
James Benamor, the company’s original founder and owner of majority shareholders, The Richmond Group, who hold 60.6% of the business, returned to the board in December.  This prompted the resignations of then chief executive Harris Paton, the chairman Stephan Wilcke and the chairman of the remuneration committee Clare Salmon.  
The shares themselves have fallen in value by approximately 80% over the previous 12 months as the company revealed that its bad debts from missed repayments had risen to £45m in the last half of 2019 alone. 
In order to stem future losses from their 222,000 customers, Amigo confirmed it would be hiring more staff to work in its collections department to chase future payments which might worry investors if they suspect that there’ll be more to come in future months. 
The company hasn’t had the best press recently with MP Wes Streeting describing them as “legal loan sharks” in his position on the Treasury Select Committee.
Amigo offers high-interest loans to customers primarily with poor credit history. Their model relies on these borrowers nominating family members or friends as guarantors to pay back the debt if they fall behind in repayments - effectively providing a reliable back-up option to recoup any missed payments. 
With a maximum interest rate of 49.9%, a borrower (or their guarantor) taking an initial £4,000 loan over three years would repay £7,026.
A company spokesperson said: “While Amigo remains confident in the robustness of its approach to lending decisions, we are concerned that there may be increased pressure on our business and a continual evolution in the approach of the Financial Ombudsman Service”.
The last comment was telling as 226 customers complained to the Financial Ombudsman Service between Mar and Sep 2019 which found in the customers favour in 59% of the cases. It suggests that they might be expecting more negative decisions to go against them in the near future. 
This follows on from a review by the Financial Conduct Authority (FCA) in November that focused on whether guarantors truly understood what their role in an Amigo agreement entailed. 
Amigo told the London Stock Exchange that the review identified areas where its customer journey could be enhanced including “increasing the explanation of key information provided to potential guarantors” and increased disclosure on the likelihood that named guarantors could be called to make payments and had the ability to do so.
Meanwhile, Amigo has announced a strategic review and appointed advisors to look for a potential buyer for the whole company. They’ve also indicated that they’d consider other options along with a sale including selling parts of the group and/or potentially de-listing shares. 
Analysts will look at the news and financial performance conclude that The Richmond Group sees little chance of value generation in the near term - which would raise further questions about the viability of the business or the short-term loan market as a whole. 
Good friends will also tell you some hard truths you might not want to hear. If your business is under performing and could do with some friendly advice, then get in touch with us. 
Our expert advisors will arrange a free, convenient initial session where we can better understand your unique circumstances and help draw up a realistic way to get the business back on its feet depending on what you want to do next with your career and your life.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association


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