On 29 November 2021, Amigo published its results for the six months ended 30 September 2021.
Amigo’s first Scheme of Arrangement was rejected by the Court in May. Since then, Amigo has been trying to come up with a new Scheme that is fairer to the customers given unaffordable loans.
“the proposed contribution to the new Scheme will be significantly increased from that of the original Scheme.”
But there are no details in this announcement about how much money will be in the new Scheme for refunds.
This article looks at what I think the important points for customers are.
Piles of cash in the bank
In court in May, Amigo said it would go into administration shortly if its scheme was not approved. At that time the FCA said Amigo was not likely to go insolvent quickly as it had a strong cash position. The FCA has obviously been proved right.
That strong cash position has now increased even further: Amigo has £260 million of unrestricted cash.
Its net borrowing position is now positive, so it has more than enough cash to repay all its bondholders. It is considering repaying some bondholders early in January.
This cash mountain has resulted from customers being pressured to carry on paying loans while Amigo is not paying out on any complaints.
… but slow progress on second Scheme
Gary Jennison, Amigo’s CEO, admits that progress towards a new Scheme
“has taken much longer than we had hoped”.
Amigo has set up a customer committee to enable it to get a better feel for what customers might prefer in a second Scheme.
The first meeting was at the start of August. On 28 September Amigo submitted a draft second Scheme to the customer committee and to the FCA. The FCA has started a review of this, even though it doesn’t yet have the final version. On 12 November Amigo submitted a revised draft to the customer committee. The FCA has not yet been sent this.
It seems that the committee has said it wants customers to be paid an increased level of redress as soon as possible. It is not interested in either of the proposed alternatives:
- customers being offered a percentage of future profits. In a previous post, I called this element of the first Scheme “perhaps some jam tomorrow”.
- customers being given an equity stake in Amigo.
This can hardly have come as a surprise, so perhaps the delay in reaching a final decision is about the size of the cash offer.
For every month this drags on, Amigo gets more money in its bank. So more can be made available to the new Scheme for redress.
Possible future timings
From here on the steps will be:
- Amigo will send the FCA a final proposal when the customer committee has approved it;
- assuming the FCA doesn’t reject it, Amigo will publish a Practice Statement Letter (PSL) which is a brief document describing the Scheme. This will be sent to all customers and the court process starts;
- a Court hearing, known as the Convening Hearing, will approve the voting arrangements;
- customers will be able to vote online and a creditor meeting will be called;
- a second Court hearing, known as the Sanctioning Hearing, will be held to consider if the proposed Scheme is fair and should proceed.
Amigo says it expects the Court process to take at least four months.
During this time, Amigo is expecting to have to raise money from the city and/or from existing shareholders. This equity raise will be going on at the same time as the court process. And Amigo has also said it will be hard to complete an equity raise under the two current FCA investigations into Amigo’s conduct have been completed.
That means the second Scheme cannot start until April 2022 at the earliest. Since the FCA does not yet have the final proposal, that is being optimistic. It could take several months more. This pushes any payouts from the Scheme well into 2023.
An alternative “wind-down” option… or administration
Today’s announcement says that Customers will be asked to vote on two options in the second Scheme.
The first is a “New Business Scheme” which will see Amigo restart lending:
- this will only happen if there is a successful equity raise and if the FCA agrees that Amigo can restart lending.
The second is a “Managed Wind-down” of the Amigo Loans Ltd business under a Scheme framework:
- here any future lending would have to be undertaken by a different legal entity, which would require FCA authorisation. I don’t know why the FCA would agree to this – it sounds a lot like what the FCA refers to as phoenixing, a process it has always objected to.
So far Amigo has said that if it went into administration, customers with current loans would be able to have those reduced or cleared by their refunds for unaffordable lending, but there would be no cash to pay any refunds.
But at some point, Amigo’s cash pile will be so large that there will be some cash to be returned to customers owed redress and other unsecured creditors if Amigo fails and goes into administration. Amigo may already be at this stage – if not, it may well reach it in the next few months.
This increasing cash pile may be what is delaying the customer committee decision. Both the New Business and Wind-Down options in the Scheme proposal have to be clearly better for customers than what they would get in administration.
16 months with no complaint handling
If people with current loans had been allowed to stop making payments earlier until their complaints were determined, many of them would have been much better off.
I think the FCA has effectively abandoned tens of thousands of vulnerable customers by allowing Amigo to stop all complaint handling. This has been made worse by allowing Amigo to continue to send threatening-sounding communications about possible court action to borrowers and guarantors.
The FCA should be ashamed.
On 13 December Amigo published details about its proposed second Scheme. See Amigo proposes a new Scheme – but is it fairer?
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