A UK court has rejected a plan to address mis-selling by sub-prime lender Amigo (AMGO.L) causing shares to sink by 50%.
Amigo offers loans to individuals from £2,000 – £10,000 over terms between 12 and 60 months, with a maximum APR of 49.9%. In 2020, Amigo was investigated by the Financial Conduct Authority (FCA) to determine if the lender had transgressed lending rules that determine whether borrowers will be able to pay a loan back. At one point, it was reported that Amigo held 80% of the UK’s guarantor loan market. Rising complaints by consumers had compelled authorities to investigate the firm.
Amigo has pitched a compensation plan for payouts for “10p for every pound owed,” according to the Evening Standard. The company said that if the plan was not agreed to it may need to file for bankruptcy.
As MoneySavingExport reported, at the beginning of 2021 Amigo notified customers of the “proposed new redress scheme and has launched an online portal on it.” But first the court needed to approve the scheme and at least 50% of creditors needed to vote in favor, and the total value of claims “must represent at least 75% of the value of the claims of all creditors who vote.” Amigo’s customers agreed to the plan but the FCA remained opposed.
Amigo stated in February:
“A successful scheme will provide certainty on the final complaints liability for all complaints on loans issued to date and will enable Amigo to focus on building a sustainable business for the long term.”
Following the decision by the court to deny the plan, the FCA issued a statement indicating it believed that Amigo can propose a more fair scheme to its customers:
“The Court has refused to sanction the Scheme of Arrangement proposed by Amigo (the Scheme). The FCA had objected to the proposed Scheme and is now carefully considering the Court’s judgment and Amigo’s response. The FCA has, through its continued engagement with Amigo and participation in the Court hearing, sought to get a better, fairer deal for Amigo’s customers due redress. We believe that a fairer compromise could have been offered to customers, but was not. The FCA considered it necessary in this case to share with the Court its view that the Scheme as proposed was inherently unfair, as it placed a disproportionate burden on customers, as opposed to shareholders and bondholders, to keep the company afloat.”
The Judge in the case has reportedly indicated that he does not believe insolvency will be the result of the ruling.