Shares in subprime lender Amigo Loans fell close to 50 per cent today after its proposed rescue plan was roundly rejected by the High Court, despite the approval of creditors.
The guarantor loan provider has been struggling under a mountain of historic mis-selling complaints and had appealed to the courts to allow it to cap compensation payments and set aside a potential £35million pot to deal with them.
However the scheme failed at the final hurdle, after the High Court said it felt roughly 1million current and past borrowers were not given sufficient information to make a decision on its scheme of arrangement.
Subprime lender Amigo Loans was teetering on the brink this morning after its proposed rescue plan was rejected by the High Court
Britain’s financial regulator had previously sent the shares into a downward spiral after it weighed in at the eleventh hour to say it would oppose the scheme at its second court hearing, which took place last Wednesday.
The Financial Conduct Authority said it felt it was unfair mis-sold borrowers would only get back as little as 5 per cent of what they were due but the company’s shareholders would not be left out of pocket.
Since the scheme was proposed late last year shares in the beleaguered guarantor lender, which lost £81.3million in the nine months to the end of 2020, have steadily risen.
They peaked at just shy of 30p on 10 May, the day before the FCA’s intervention, leaving the company with a market capitalisation of over £140million.
However, since then those gains have been wiped out, with the company now worth just £45million and the shares falling to as low as 7p this morning.
Mr Justice Miles said in his judgment: ‘I have accepted the submissions of the FCA that the creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them; or 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 said due to ‘the limited financial sophistication and literacy’ of creditors, the information provided to them about the scheme by Amigo did not properly inform them about the repercussions of the scheme for both them and the company’s shareholders.
As a result, he threw out the overwhelming vote in favour of the scheme by creditors, which saw 74,866 creditors approve it and just 3,862 vote against.
He noted this amounted to just 8.7 per cent of all the company’s borrowers, who were allowed to vote on the scheme.
Amigo has consistently maintained that a vote against the scheme would tip it into administration.
Chief executive Gary Jennison told our sister title the Financial Mail on Sunday on 15 May that ‘if the judge rules against the scheme, Amigo will go into insolvency.’
However, Mr Justice Miles effectively accused the company of fearmongering. He wrote in his judgment: ‘The FCA submitted (and I agree) that it is unlikely that the directors would put the group straight into administration and destroy the substantial surplus value of the enterprise.’
He added: ‘There is nothing in the evidence to suggest any imminent cashflow event that would force Amigo into insolvency.’
Complaints cost it £116.2million in the nine months to the end of 2020, but it has not paid out any more compensation since 21 December.
I am not persuaded on the material before me that, if the present scheme fails, there would be no room for another restructuring of the group under which the position of scheme creditors could be improved.
The High Court judge urged the company to go back to the drawing board.
He said: ‘I am not persuaded on the material before me that, if the present scheme fails, there would be no room for another restructuring of the group under which the position of scheme creditors could be improved.’
In response to the judgment, the FCA said in a statement: ‘The FCA considered it necessary in this case to share with the court its view that the scheme as proposed was inherently unfair, as it placed a disproportionate burden on customers, as opposed to shareholders and bondholders, to keep the company afloat.
‘The FCA believes that Amigo can propose a fairer scheme to customers. It should also ensure that its customers are fairly represented and advised on alternative proposals for a scheme.’
John Cronin, a financial analyst at the stockbroker Goodbody, said this morning: ‘We suspect a potential sweetening of the terms (a second scheme in effect) must be under very careful consideration to avoid an outright collapse of the business into administration.’
Mr Jennison told the London Stock Exchange this morning: ‘Amigo is incredibly disappointed that the Scheme has not been approved despite the 74,877 customers who voted in support of the Scheme, representing over 95 per cent of those who voted.
‘We are currently reviewing all our options and will provide an update at the earliest opportunity.’
Shares in fellow subprime lender Provident Financial Group, which is also proposing a scheme of its own, were also down 5 per cent this morning.
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