Amigo Loans may collapse if it fails to resolve dispute with regulators – .

Amigo Loans may collapse if it fails to resolve dispute with regulators – .

Amigo Loans, one of the UK’s largest risky lenders, has warned it risks collapsing if it fails to resolve a long-running dispute with regulators over customer complaints as revenues and the number of customers plummeted.

The group, which lends to people with poor credit histories, said it plans to raise funds and submit new proposals to the High Court, including additional compensation for plaintiffs, to keep the business going. afloat.

“There are many, many obstacles to help us overcome this,” said general manager Gary Jennison. “We have done a lot of good things to improve the finances, but there is still an insolvent balance sheet of £ 120million. “

The warning caused its holding company’s share price to fall 29% to 7.62p at the close in London on Monday, as earnings fell almost 40% to £ 56.5million for the six months through Sept. 30, while the number of customers fell 42 percent to 102 million.

Most of the new loans were frozen at the start of the pandemic. It did, however, achieve pre-tax profit of £ 2.1million, down from a loss of £ 62.6million in the same period in 2020.

It is now up to the High Court to decide whether or not to accept a plan of arrangement to prevent the collapse of the company after it has been submitted to the Financial Conduct Authority and an independent client committee. The ICC was put in place to allow customers’ voices to be heard.

“The sanction of a new regime is increasingly urgent,” the company said. “Without an approved program, Amigo expects to have to file for administration or other insolvency proceedings. “

Jennison said Amigo offered two options to the ICC – the first offered ‘significantly increased’ payments for claimants compared to a proposal that the FCA rejected in May – due to a stronger-than-expected economic outlook in December 2020 .

Jennison said that as part of this proposal, Amigo suggested a new business model that included a revised guarantor loan and two loans under a new brand, although he stressed that the loan was conditional on FCA approval. and the court, as well as the shareholder. Support.

The second option is to sanction a liquidation program.

If neither of the two options is accepted by the court, Amigo’s board of directors will move quickly to insolvency proceedings, Jennison said.

The company is also considering raising equity, which would likely lead to a dilution of the shares that would lead to shareholders owning a “smaller proportion” of the group if they do not take back their rights.

Jennison said such a move is at least a year away, and in the shorter term, the company could start small-scale lending without increasing additional debt.

Amigo once dominated the secured loan market, lending to people with poor credit histories who are supported by a friend or family member if they miss a payment.

However, it has not been able to resume new loans, which were frozen at the start of the pandemic, as it struggles to reach an agreement on compensating customers for historic mis-sales.

Amigo has faced complaints from consumers who accused him of not checking whether their loans are affordable.

An attempt to strike a deal to settle the backlog was blocked in court after the FCA intervened, arguing that the “plan of arrangement” would have mainly benefited shareholders.

The claimants would have received a fraction of the compensation owed to them. Amigo argued that the alternative was for the company to fall into administration, which he said would likely leave the claimants with nothing.

FCA did not respond to the request for comment at the time of publication.


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