A High Court judge today threw out one of the country’s biggest sub-prime lenders’ efforts to slash compensation for thousands of vulnerable customers to whom it mis-sold loans.
Amigo Loans said it had to cut the payouts to as little as 10p for every pound owed or it would go bust, leaving nothing for customers at all.
The Financial Conduct Authority objected, declaring it was not fair that mis-selling victims should sacrifice their dues when Amigo shareholders were not sharing in the “haircut”. It also cast doubt on Amigo’s claim that it would go bust if the deal was not approved.
Mr Justice Miles agreed with the FCA, highlighting how the share price of the company had shot up 250%, valuing the group at £140 million, since it announced the so-called “scheme of arrangement” in December 2020.
This surging valuation showed that the stock market felt the deal was better for shareholders than the mis-selling victims.
The judge struck out the Amigo scheme of arrangement, saying he agreed there was “real force” in the FCA’s arguments.
He cast doubt on the company’s claim that insolvency was the only alternative, pointing out that it had plenty of cash, meaning there was “no evidence of an imminent cashflow crunch.”
“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,” he said.
Besides, he said, the FCA had agreed to offer Amigo breathing space on paying compensation claims, particularly if it decided to plan a more generous restructuring scheme.
Shares in Amigo halved today as investors’ hopes of a deal were dashed
The case is being closely watched at Provident Financial, which is attempting a similar exercise with mis-selling victims in its doorstep lending division. Its shares fell 5%.
Amigo had attempted to argue that shareholders would be taking the pain from the settlement because they would be paying for the compensation out of company profits.
It had also said getting shareholders to take a haircut would have been impossible as it would have been too difficult to contact them all - a claim the judge dismissed as “unpersuasive.”
He also was “unable to accept” Amigo’s claims that coming up with an alternative arrangement would cost another £15 million to organise.
“The evidence adduced by the company has failed to persuade me that the most likely alternative to this scheme is the imminent collapse of Amigo into insolvency...
“The evidence adduced by the company does not satisfy me that there is no room for further proposals to be formulated to preserve value for stakeholders.”
Amigo’s creditors were polled on the scheme and a majority of the 9% of creditors who voted had agreed to it.
But the judge said they were likely to have “relatively low levels of financial literacy” and had not had access to financial advice about the deal.
He also found that Amigo gave the false impression to its unsophisticated creditors that they had no alternative beyond liquidation or the deal on offer.
The company failed to explain that there could be realistically probable alternatives, he said.
In conclusion, the judge said: “I would urge the directors to continue their efforts to promote a suitable restructuring.”
The FCA said after the judgement: “The FCA has sought to get a better, fairer deal for Amigo’s customers’ due redress. We believe a fairer compromise could have been offered but was not.
“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.”
It warned other considering similar actions: “This is an important judgment and any firm considering a scheme of arrangement should take it into consideration.”
Gary Jennison, Amigo chief executive, said: “Amigo is incredibly disappointed that the scheme has not been approved despite the 84,877 customers who voted in support... representing over 95% of those who voted.
“We are currently reviewing all our options and will provide an update at the earliest opportunity.”