Amigo lends money to people with bad credit histories, but has come under fire for its controversial affordability checks, which include asking borrowers to sign up family or friends as guarantors.
Payday lender Amigo Loans said it faced insolvency after judges rejected its plans to cut payments for victims of badly sold loans last month.
The company said today it would not pursue an appeal against the High Court after judges refused to approve a controversial proposal to cap customer compensation claims.
Amigo Loans said it had to cut payments to 10p for every pound owed or it would go bankrupt, leaving customers with nothing.
However, the High Court said the proposals were unsatisfactory and unfair, given the share’s record price over the past six months, which valued the company at £140m – a decision which resulted in substantial payouts for leaders.
Today the lending giant said its options ‘now include insolvency and whether it would be possible and appropriate, given the cost of a scheme, to promote an alternative scheme of arrangement to avoid insolvency “.
A statement added that he is liaising with the Financial Conduct Authority (FCA) on his future.
All pending and new compensation claims remain pending until an agreement is reached, he said.
Gary Jennison, Amigo’s Chief Executive, said: “Without a plan, Amigo risks insolvency as it will not be able to meet its customers’ claims for compensation or meet legally binding funding obligations due to its secured creditors.
“The Board is committed to finding the best possible solution for Amigo customers and other stakeholders and will work with its stakeholders, including the FCA, to achieve this solution as quickly as possible.”
Amigo’s rescue package involved restrictions on compensation paid to borrowers and has been criticized by the UK financial regulator, MPs and debt campaigners for being unfair to some of the UK’s poorest borrowers.
“I understand why the administrators have sought to find a way to deal with the potentially unsustainable level of claims for relief,” Judge M. Justice Miles said.
He added: “Some form of group restructuring is clearly desirable and even necessary. But the question is whether, in all the circumstances, this diet should be approved.
“I accepted the arguments of the Financial Conduct Authority that the relief creditors did not have the necessary information or experience to enable them to properly assess the alternative options reasonably available to them; or to understand the basis on which Amigo was asking them to sacrifice the bulk of their claims for relief, while Amigo shareholders were to be allowed to retain their stake.
The FCA said it is carefully reviewing the court’s judgment and Amigo’s response.
The watchdog said it wanted to get a better, fairer deal for Amigo customers because of compensation. “We believe a fairer compromise could have been offered to customers, but was not,” he said.
“The FCA found it necessary in this case to share with the court its view that the regime as proposed was inherently unfair, as it imposed a disproportionate burden on customers, as opposed to shareholders and bondholders, to maintain the business afloat.”
Amigo, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, believes that many of its 1 million former and current customers who have been badly sold could only receive 10% of any successful claim and possibly a share of future profits, depending on the judgment.
He noted that borrowers could receive “less than 10 pence in the pound depending on the level of receivables and other factors”.
Amigo insists it is unable to meet the rising costs of dealing with customer complaints through the UK’s financial ombudsman.
The case is being closely watched by Provident Financial, which is attempting a similar exercise with victims of mis-selling in its home loan division.
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