Lender Amigo has ramped up warnings that it could go bust after a judge refused to approve a compensation scheme for customers.
The firm, which lends to people with a poor credit score if they have a friend or family member willing to make the repayments if they cannot, said it would not appeal against a court’s decision to dismiss the controversial scheme and send its bosses back to the drawing board.
But it said that its future was now on a knife-edge, and that it was ‘considering all options’, including insolvency.
Warning: Amigo, headed by chief executive Gary Jennison (pictured), fell into trouble last year, after rules concerning affordability checks were changed
Amigo fell into trouble last year, after rules concerning affordability checks were changed and hundreds of thousands of its customers were suddenly eligible for compensation.
Borrowers, encouraged by opportunistic claims management companies trying to make a profit for themselves, inundated Amigo with requests for redress.
The firm quickly realised that it did not have the £151m needed to pay them, so tried to set up a scheme which would see them receive as little at 10p for every £1 they were due.
But after a last-minute intervention by the Financial Conduct Authority (FCA) watchdog, which claimed Amigo customers were not getting a fair deal, the High Court refused to let the scheme go ahead.
In a decision which was handed down last week, Mr Justice Miles cast doubt on Amigo’s claims that it would collapse if the compensation scheme did not get the green light.
He urged Amigo’s bosses to come up with an alternative, which shared the burden of redress more equally across shareholders, bondholders and the customers themselves.
But in an update yesterday, Amigo chief executive Gary Jennison said: ‘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.
‘The board is committed to finding the best solution it can for Amigo’s customers and other stakeholders and will be working with its stakeholders, including the FCA, to achieve that solution as quickly as it can.’
Amigo hinted that it may not be ‘possible and appropriate, given the cost of a scheme’, to come up with a new compensation plan to avoid insolvency.
During the court hearing, Amigo’s barrister Robin Dicker QC hinted that another restructuring or fresh redress scheme might take as long as six months to agree and cost up to £15m just to iron out.
In the meantime, none of the customers who are owed compensation are getting paid.
But John Cronin, an analyst at broker Goodbody, said: ‘We see a second scheme as an inevitability as the board seeks to preserve the longevity of the business.’
He suggested the most likely outcome was that Amigo made its current suggestion more generous, offering customers a greater share of profits in future years to fulfil their claims as the business turns over a new leaf.
Cronin added: ‘Given that this is an option for the board, it is difficult to see why Amigo would opt to go down the insolvency route instead. However, how far Amigo needs to go to secure court approval for a second scheme is an open question – and its dialogue with the regulator in the coming weeks will inform its decision in this respect.’
Amigo has also postponed the release of its results for the year to March 2021, which were due around now. It is hoping to publish them before July 29.
Shares in the company slumped another 12.1 per cent, or 1p, to 7.3p yesterday – they have crashed 97 per cent over the last two years.