Amigo Loans has said it faces insolvency after it suffered a major blow last week when a High Court judge refused to approve a compensation scheme that capped payments for historic complaints.
In an update this morning, the sub-prime lender said it would not be pursuing an appeal following the High Court judgment.
As a result, it said, the company was considering all options available, including insolvency, and whether to come up with another payment scheme that could avoid the business becoming insolvent.
At the time of the ruling, High Court justice Robert Miles rejected Amigo’s claim it would go into insolvency if the scheme was not approved.
“Without a scheme, Amigo faces insolvency as it will be unable to satisfy its customer compensation claims as well as meeting the legally binding funding obligations owed to its secured creditors,” Amigo CEO Gary Jennison said.
“The board is committed to finding the best solution it can for Amigo’s customers and other stakeholders and will be working with its stakeholders, including the FCA, to achieve that solution as quickly as it can.”
Less generous than FOS
The troubled lender set up the scheme to compensate indebted clients who complained about its practices.
The Financial Conduct Authority (FCA) has been critical of the scheme, pointing out that, if the scheme was put into use, customers stand to receive significantly less than the value of their claims, or the value they would typically receive through the Financial Ombudsman Service (FOS).
Customers who lodge successful claims with the FOS typically receive payouts that leave them in the same financial position that they started in, often meaning a 100 per cent refund, plus inflation.
But Amigo asked courts to approve a compensation scheme that would cap the amount paid out to customers, and by its own examples it payments could only be worth between 10 and 23 per cent of the value of the loan.
Last week’s ruling sided with the City watchdog, which argued that the scheme would place a “disproportionate burden on customers, as opposed to shareholders and bondholders.”