Shares in UK subprime lender Amigo plunged in fears the company could collapse after the High Court refused to approve it. Controversial proposals to limit customer claims..

The lender, which hands loans to customers with a poor credit score if they have a friend or family member willing to repay the debt if they cannot, had warned it would go bust ‘in short order’ if its plan did not get the green light.

But the Financial Conduct Authority cast doubt on Amigo’s claims in a last-minute intervention before last week’s hearing at the High Court – and in a judgment published yesterday, Mr Justice Miles sided with the watchdog.

After judge Justice Miles, Amigo fell 55% to 8.3p. Judgment “I wasn’t happy that the court should approve the plan,” he said. The recent sharp fall in stock prices comes after a big loss last week, as traders expected the ruling.

Amigo won a majority of 95% of the votes At a meeting on May 12, the judge agreed with a scheme from customers about a proposal to pay compensation to a borrower who mistakenly sold a loan, but the judge said the turnout was very low at 8.7%.

The bailout plan includes restrictions on compensation paid to borrowers and has been criticized by UK financial regulators, MPs and debt activists for being unfair to the poorest borrowers in the UK.

“I understand why directors are looking for ways to deal with unsustainable levels of bailout claims,” Miles said.

He added: “Some form of restructuring of the group is clearly desirable and really needed. But the question is whether this scheme should be approved in all situations. I accepted my submission. Financial Conduct Authority Relief creditors lacked the information or experience necessary to be able to adequately evaluate alternative options that they could reasonably use. Or understand the rationale for Amigo’s request to sacrifice most of the bailout claims while Amigo’s shareholders were allowed to hold shares. “

The judge added that the court’s dismissal of Amigo’s proposal accepted the FCA’s submission that “it probably would not lead to the group’s imminent bankruptcy.” There is no evidence of an immediate (or medium-term) liquidity crisis. “

Reacting to the court ruling, the FCA said: ‘This is an important judgment and any firm considering a scheme of arrangement should take it into consideration.’

Gary Jennison, Amigo’s chief executive, said he was ‘incredibly disappointed’ with the judge’s decision. He added: ‘We are currently reviewing all our options and will provide an update at the earliest opportunity.’

Amigo is creaking under a pile of compensation claims from its customers after rules around affordability checks were changed last year. 

Close to 1m borrowers and guarantors, encouraged by claims management companies, tried to claim redress from the lender, saying that they should never have been handed Amigo’s high-cost loans.

Estimating that it could be forced to pay out up to £151million in compensation, Amigo realised that it did not have the money. 

The FCA said it was carefully considering the court’s ruling and Amigo’s response.

Watchdog said he wanted to get justified compensation for better, fairer deals with Amigo’s customers. “We believe that a fairer compromise could have been offered to our customers, but it wasn’t,” he said.

“The FCA, in this case, needs to share with the court the view that the proposed scheme is inherently unfair in order to maintain the company by imposing a disproportionate burden on customers rather than shareholders and bondholders. I thought there was. “

Amigo CEO Gary Jennison said the company is considering all options, including appeals. “Amigo is very disappointed that the scheme was not approved, despite 74,877 customers who voted in favor of the scheme, which accounts for more than 95% of the people who voted.” It was.

So it set up a scheme which would see all customers get a part of the redress they were due – but this could be as little as 10p for every £1 they were owed.

Amigo urged customers to approve the plan, warning them it would go bust if it was forced to pay all redress in full. If it did collapse, the firm cautioned, most borrowers would get nothing.

Amigo charges 49.9% interest and requires the borrower to act as a guarantor for friends and family, but is received by many of the 1 million former and current customers who mistakenly sold the loan. The concern that it could be done ignited. 5% to 10% of successful claims as part of a plan to limit the compensation pool to up to £ 35m and 15% of profits over the next four years.

The scheme was put to the vote, and 95 per cent of Amigo customers who took part gave it the thumbs-up. 

But they only constituted 8.7 per cent of the borrowers who could have voted, as the rest did not make their feelings known.

But the FCA said the scheme was unfair, and Amigo’s shareholders should put some money in and share the burden of the compensation scheme.

Jennison said this was unlikely – Amigo has just two major institutional shareholders and the rest of its stock is held by around 8,000 individual investors. 

Many were enticed into buying stock by the presence of Amigo’s founder and former boss James Benamor, who frequently interacted with shareholders on Twitter.

But he sold down his entire 61 per cent stake last year after his attempted comeback failed.

Campaign participants I opposed Proposal to give board directors the opportunity to earn £ 7m in long-term bonuses as part of a deal.

Despite the lack of deep-pocketed shareholders, the FCA said in court documents that the ‘allocation of burden and benefit’ between Amigo investors and customers was ‘unfair’ and ‘disproportionate’.

While borrowers would get just 10 per cent of their redress, shareholders would still be left with their entire holding. It said customers may have simply agreed to the compensation scheme because they didn’t think they had another option.

In his judgment, Mr Justice Miles agreed with the FCA and urged Amigo to come back with a better offer.

He said: ‘The court’s refusal to sanction the scheme will probably not lead to the imminent insolvency of the group.

‘There is no evidence of any immediate (or even medium-term) liquidity crunch, and the directors will doubtless wish, if possible, to preserve the value of the enterprise for its various stakeholders.

‘The FCA expects the directors to continue to explore and promote a restructuring which fairly allocates the benefits and losses among the various stakeholders.’

Amigo says he cannot keep up with the increasing costs of dealing with customer claims through the UK financial ombudsman. Executives say that if the scheme is rejected, the company could collapse into the administration and pay the borrowers to a minimum.

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