Struggling risk lender Amigo has said it will go bankrupt unless it is allowed to resume loans and raise new equity under a proposed new bailout.
Amigo said in the six months leading up to the end of September he had set aside £ 344million for clients who complained they had been mis-sold for loans they couldn’t afford.
The lender, which gained popularity following the demise of rival Wonga in 2018, was banned from lending in May by the Financial Conduct Authority.
Amigo submitted a new bailout after the High Court rejected the terms of its original compensation package, which would only have granted customers 5% to 10% of any successful claims, and capped the pool at 35 million of pounds sterling and 15% of the profits. over the next four years.
Although details of the program have not been made public, Gary Jennison, chief executive of Amigo, said the company took into account the opinion of an independent client committee that it was recommended to set it up by the High Court judge.
“The creditors’ committee has made it clear that they want a system that offers the certainty of cash payment, delivered quickly, and this is reflected in the revised offer we are presenting here today,” Jennison said at About what he called the new trade regime.
“It will offer a significantly better cash contribution compared to the original plan developed a year ago.”
The company added: “The sanction of a new regime is increasingly urgent. Without an approved plan, Amigo expects to have to file an administration or other insolvency proceeding. “
Amigo said the loan depreciation rate fell from 14% to 22% of its gross loan portfolio in the first six months of its fiscal year, compared to the same period last year as more and more customers default when Covid’s reimbursement holidays expire.
He had set aside a much lower figure of £ 159million for potential compensation for the six months until the end of September 2020.
Following the ban on new loans, customer numbers fell 45% year-on-year to 176,000, with revenue down 39% to £ 56million in the first half of its fiscal year . The company managed to make a pre-tax profit of £ 2.1million, down from a loss of £ 62million in the six months to the end of September last year.
Jennison warned that the new compensation scheme depended on Amigo’s authorization to restart loans and a successful capital raise to refinance the company, a move that would see all shareholders who do not participate see their stakes significantly. diluted.
A second option was also proposed, that of a “managed liquidation of Amigo loans”.
“The board believes that the new business plan will provide creditors with higher relief and a more certain outcome,” the company said. “Both options will be submitted to the court for sanction at the same time. If the judge does not sanction the new business plan, he will then be asked to sanction the liquidation plan at the same hearing.
Amigo said that despite reporting a small profit for the period, the company has a significant net liability of £ 117.6million.
“Although the process took much longer than expected, it is essential that we obtain this right to achieve the most equitable outcome for our clients and to convince the High Court and our regulator that we have addressed their concerns,” Jennison said.