Monday 29 March 2021 1:38 pm

High Court rules LCF bondholders not eligible for compensation

Bondholders who lost millions when London Capital & Finance collapsed two years ago will not be eligible for compensation, the High Court ruled today. 

The investment firm collapsed in 2019 leaving 11,6000 bondholders facing losses of up to £267m. The firm was regulated by the City regulator but the bonds were unregulated. 

The bondholders had sought a judicial review of a decision made by the Financial Services Compensation Scheme which rejected most of the claims. 

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“It goes without saying that the Claimants and their fellow investors deserve the greatest sympathy for the plight in which LCF left them,” Mr Justice Bourne said. “Nevertheless, despite the force, lucidity and skill with which their case was advanced before me, the claim must be dismissed.” 

The High Court agreed with the FCSC that the bonds sold by LCF do not meet the conditions for compensation. 

Thomas Donegan, partner at Shearman & Sterling, which is representing a group of LCF bondholders said they were seeking permission to appeal. 

“”We are pleased that the judge found in our favour that the non-transfer provisions of the LC&F bonds were unfair and unenforceable,” he said.

“However, and with respect, we were disappointed that the bonds were then found not to be a “transferable security” for regulatory purposes meaning their issuance was not subject to FSCS compensation.  Our clients intend to seek permission to appeal the decision.” 

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Last year a damning report into the LCF scandal heavily criticised Andrew Bailey, former head of the FCA and now governor of the Bank of England,for failing to do more. 

The independent report by Dame Elizabeth Gloster found the watchdog had failed to properly regulate the firm. 

Last week Bailey admitted to MPs the FCA had not done enough to protect LCF’s victims. In response to written questions from the Treasury Select Committee, he said he may have made mistakes in choosing not to prioritise the products sold by LCF.