The sub-prime lender Amigo faces potential collapse after confirming it will not appeal against a high court decision that blocked a scheme to cap customer compensation payouts.
Amigo, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, said it would now “consider all options”.
The looming threat of the company’s insolvency sent shares down 12% yesterday to7.3p.They are down 75% in the past month and have lost 97% of their value since their peak in December 2018.
Amigo said it was looking at an alternative scheme to manage the costs of a surge in customer compensation claims. However, crafting a new scheme could be costly and take months to complete, and would still need to be approved by its creditors and the courts.
The lender would also need the support of its regulator, the Financial Conduct Authority, which criticized its first scheme for being unfair to some of the UK’s poorest borrowers.
Amigo has been deluged by misselling claims by customers who have accused the business of handing out unaffordable loans. But Amigo said it was unable to keep up with the mounting costs of those claims, and was now at risk of going under,
However, last week the high court refused to approve Amigo’s scheme, which could have seen successful complaints receive as little as 5% to 10% of any successful claim, and capped the compensation pool at a maximum £35m and 15% of profits over the next four years.
Executives warned Amigo would be likely to collapse barring a new proposal. “Without a scheme, Amigo faces insolvency as it will be unable to satisfy its customer compensation claims as well as meeting the legally Binding funding obligations owed to its secured creditors,” Amigo’s chief executive, Gary Jennison, said.
“The board is committed to finding the best solution it can for Amigo’s customers and other stakeholders and will be working with its stake-holders, including the FCA, to achieve that solution as quickly as it can,” he added.
