Consumer credit providers (in particular, high and medium cost short term credit, guarantor lenders and rent-to-own lenders) continue to face challenges arising from allegations that past affordability assessments failed to meet regulatory standards. This issue has been amplified by the fact that claims management companies have shifted their attention from banks (i.e. PPI claims) to consumer credit providers, driving up administrative costs and increasing redress liabilities.
Several lenders have therefore considered using a Scheme of Arrangement as a tool to compromise mounting existential redress liabilities, with two leading cases (Amigo and Provident) achieving different results at Sanction. This perhaps narrows the scope for using Schemes in the future, but they remain a viable rescue tool for businesses with genuine liquidity and solvency issues.
In addition, following a number of high-profile insolvencies the FCA has increased its focus on solvent wind down plans, and is seeking to:
Expand the perimeter of firms required to have SWDP; and
Ensure that SWDPs are robust and implementable. In our experience, smaller single regulated firms (such as consumer credit providers) can sometimes lack the resources to produce SWDPs to the FCAs required standards, but our dedicated SWDP team can support firms through this process, freeing up management time to run the business.
Engaged by the FCA to perform a loan book provisioning review of a UK HCSTC lender and to perform a cash flow and balance sheet solvency assessment of the lender and associated businesses.
Concluded that the lender was insolvent and retained to advise the FCA in relation to its strategy and communications with the lender and to review management reports for the FCA.
Firm ultimately concluded that it was insolvent and took pre-emptive action to file for administration.
Options Assessment/Pre-pack Admin
Instructed to advise RTO retailer on options including M&A and wind-down/collect-out of its debtor book, as part of which we regularly reviewed the company’s solvency and ability to trade in light of cash constraints.
Although our M&A process identified significant interest in the business, no offers were received for the Company’s shares, so a sale was ultimately implemented via a pre-pack administration, preserving jobs and providing continuity for consumers/borrowers.
Scheme of Arrangement
We were engaged company-side to provide advice regarding a proposed Scheme of Arrangement in relation to a market leading provider of personal loans to sub-prime borrowers in the UK.
Due to legacy affordability complaints, the firm was facing a mounting and existential redress liability. Our work focussed on assessing:
The prospects of the scheme being approved (including the position of the FCA),
The relevant alternative, and
The implications on the Group if the scheme was not approved.
