The future of lender Amigo remains uncertain, the company has confirmed, despite managing to increase profit tenfold.
The business is facing a long list of complaints from its rapidly shrinking customer base, which it estimates could cost hundreds of millions of pounds to settle.
However, because Amigo added this charge to last year’s accounts, it was able to book a £15 million pre-tax profit in the first quarter of this year, up from £1.4 million a year earlier.
Nevertheless it only goes a small way to plug the massive hole from last year.
At that point Amigo booked a £284 million loss – potentially crippling for the business – but much of the loss comes from the cost of complaints so the money has not yet gone out.
Now the guarantor loans company is trying to ensure that the full amount never needs to be paid out, which could allow it to stave off collapse.
Chief financial officer Mike Corcoran said: “A material uncertainty over the group’s ability to continue as a going concern remains.”
Amigo has calculated that customer complaints could cost it around £338 million – money it simply does not have.
In a bid to stave off collapse, it is trying to hammer out a deal with its customers and the Financial Conduct Authority.
Already one such deal has been thrown out of court after the FCA objected.
Amigo argues that a deal, called a scheme of arrangement, would be the best option, and would ensure that all customers get at least some compensation.
If Amigo was to be forced into administration, the company argues that people who have bought its bonds – not customers – would be first in line to get money out of the business.
Following that, some customers would have their complaints settled in full, but many would be left without any money at all.
Revenue dipped by a third to £32.5 million in the first quarter of the year as the number of customers fell by 41% to 118,000.
Mr Corcoran said: “The extremely challenging situation facing Amigo, resulting from the significant liability for compensation payments for historical lending, provides the context for our first-quarter results.
“Within this context, the performance of the business in the first quarter has been better than anticipated.”