Amigo shares dive as high court rejects loan compensation cap


Shares in the UK sub-prime lender Amigo have plummeted on fears that the firm could collapse, after the high court refused to approve a controversial proposal to cap customer compensation claims.

Amigo tumbled as much as 55%, falling to 8.3p, after the judge, Mr Justice Miles, issued a ruling stating that he was “not satisfied that the court should sanction the scheme”. The latest sharp declines in the share price come after heavy losses last week as traders anticipated the ruling.

Amigo had secured a majority of 95% of votes in favour of a scheme from customers at a meeting on 12 May for its proposals to pay compensation to borrowers who had been mis-sold loans, but the judge noted that the turnout had been very low, at just 8.7%.

The rescue scheme involved restrictions on compensation paid out to borrowers, and has been criticised by the UK financial regulator, MPs and debt campaigners for being unfair to some of the UK’s poorest borrowers.

“I understand why the directors have sought to find a way of addressing the potentially unsustainable level of redress claims,” Miles said.

He added: “Some form of restructuring of the group is clearly desirable and indeed needed. But the question is whether, in all the circumstances, this scheme should be approved. I have accepted the submissions of the Financial Conduct Authority that the redress creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them; or to understand the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake.”

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The judge added that he had accepted the FCA’s submission that the court’s rejection of Amigo’s proposals “will probably not lead to the imminent insolvency of the group; there is no evidence of any immediate (or even medium-term) liquidity crunch”.

The FCA said it was carefully considering the court’s judgment and Amigo’s response.

The watchdog said it had wanted to get a better, fairer deal for Amigo’s customers due compensation. “We believe that a fairer compromise could have been offered to customers, but was not,” it said.

“The FCA considered it necessary in this case to share with the court its view that the scheme as proposed was inherently unfair, as it placed a disproportionate burden on customers, as opposed to shareholders and bondholders, to keep the company afloat.”

Gary Jennison, the Amigo chief executive, said the company was reviewing all its options including an appeal. “Amigo is incredibly disappointed that the scheme has not been approved despite the 74,877 customers who voted in support of the scheme, representing over 95% of those who voted,” he said.

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Amigo, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, has come under fire over concerns that many of its 1 million former and current customers who were mis-sold loans could receive as little as 5% to 10% of any successful claim, as part of plans to cap the compensation pool at a maximum £35m and 15% of profits over the next four years.

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Campaigners have objected to proposals that would give board directors the chance to earn £7m in long-term bonuses as part of the deal.

Amigo says it is unable to keep up with the mounting costs of addressing customer claims through the UK’s financial ombudsman. Executives have said the company could collapse into administration if the scheme is rejected, resulting in minimal payouts for borrowers.



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