Amigo Loans at risk of collapse if it fails to resolve dispute

Subprime lender Amigo Loans has warned it risks collapsing if it fails to resolve a long-standing dispute with regulators over customer complaints.

Revenue fell almost 40 percent to £ 56.5million for the six months to September 30, while the number of customers fell 42 percent to 102million. 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.

Shares of the company fell 30% at the start of the London session on Monday, sending losses for the year to 6%.

“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.”

This is to come up with an increase in equity alongside a plan that could increase compensation for claimants. The board is also considering early partial repayment.

Any increase in capital is likely to lead to a dilution of the shares which will lead to the shareholders owning a “smaller proportion” of the group if they do not exercise their rights.

“The likelihood of significant potential dilution for shareholders is a difficult but necessary consequence of our situation,” said Managing Director Gary Jennison. “We have noted on several occasions that we are an insolvent company, so there is no easy path if we are to avoid administration and the only other options are a liquidation or a managed insolvency.”

Payments to applicants

Amigo this month revised an offer for a program proposal that he submitted to the Financial Conduct Authority (FCA) and the Independent Customer Committee (ICC) in October, the group said on Monday.

The offer offered two options to the ICC, submitted on November 12. The proposals “dramatically increased” claimant payments, thanks to higher collection levels than those modeled in the December 2020 projections, the company said.

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.

Amigo also has an Irish operation and started lending here in February 2019, targeting people with “bad credit” who had been turned down by traditional lenders. It offered loans of up to € 5,000 at an annual rate of 49.9%.

However, it has stopped all new loans pending its restructuring. He has not been able to take over new loans as he struggles to come to an agreement on indemnifying customers for historical abuses.

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 by a 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 the alternative was for the company to fall into administration, which he said would likely leave the claimants with nothing. – Copyright The Financial Times Limited 2021

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