Amigo Loans faces collapse if it fails to resolve dispute

Subprime lender Amigo Loans has warned it faces collapse if it cannot resolve a drawn-out dispute with regulators about customer complaints.

Revenues fell almost 40 per cent to £56.5 million for the six months to September 30th, while customer numbers dropped 42 per cent to 102 million. Most new lending was frozen at the start of the pandemic. It did, however, swing to a pre-tax profit of £2.1 million, from a loss of £62.6 million over the same period in 2020.

Shares in the company dropped 30 per cent in early London trading on Monday, sending losses for the year to 6 per cent.

“The sanctioning of a new scheme is increasingly urgent,” the company said. “Without an approved scheme, Amigo expects to have to file for administration or other insolvency process.”

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It is to propose raising equity alongside a plan that could increase payouts for claimants. The board is also considering early part-repayment.

Any equity raise is likely to mean a share dilution which will lead to shareholders owning a “smaller proportion” of the group if they do not take up their rights.

"The likelihood of a potential material dilution for shareholders is a difficult but necessary consequence of our situation," said chief executive Gary Jennison. "We have noted on many occasions, we are an insolvent business so there are no easy paths if we want to avoid administration and the only other options are for a managed wind-down or insolvency."

Payouts to claimants

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

The offer gave two options to the ICC, submitted on November 12th. The proposals “significantly increased” payouts for claimants, thanks to higher collection levels than modelled in projections from December 2020, the company said.

Amigo once dominated the market for guarantor loans, lending to people with weak credit histories who are backed by a friend or family member should 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 per cent.

However, it stopped all new lending pending its restructuring. It it has been unable to resume new lending as it struggles to reach an agreement over customers' compensation for historic mis-selling.

Amigo has faced complaints from consumers who accused it of failing to check whether their loans were affordable. An attempt to strike a deal to settle the backlog was blocked by a court after the FCA intervened, arguing the “scheme of arrangement” would have primarily benefited shareholders.

Claimants would have received a fraction of the compensation they were owed.

Amigo argued the alternative was the company falling into administration, which it said would likely leave claimants with nothing. – Copyright The Financial Times Limited 2021