Sub-prime lender Amigo Loans is to be liquidated after failing to raise the necessary funds to compensate customers, leaving shareholders with nothing. The Financial Conduct Authority's recent investigation found that the lender had put business interests ahead of customer needs, placing them at high risk of harm. Despite this, Amigo managed to avoid a £73m fine. The company’s liquidation means that creditors owed compensation will receive an estimated 17p in the pound, and the wind-down process is expected to take about a year. Amigo specialized in providing credit to individuals who were excluded from mainstream banks.
Amigo Loans is going out of business because it was unable to get sufficient funds for its continued operation.
Individuals who are entitled to compensation will receive 17 pence for every pound, but the stockholders of the sub-prime lender will be wiped out.
Amigo Loans, a subprime lender, is going to be dissolved because it was unable to generate enough money to support consumer compensation with the funds it did raise.
Amigo announced that it will stop lending with immediate effect and be placed into an orderly wind-down. All of the company’s surplus assets would be given to the creditors of its compensation program. This announcement came after Amigo spent months attempting to devise a plan to save the company. As a result of the announcement, the share price plummeted to 0.4p, down 75%.
It is anticipated that the winding down will take around a year. The company’s primary focus is on serving customers who are unable to obtain credit from traditional financial institutions.
Those who are due compensation by Amigo will receive less as a result of the bankruptcy, while stockholders will have their investments completely wiped away. PricewaterhouseCoopers, which is monitoring the process, estimates that those who are entitled to compensation will get 17 pence for every pound that they are due.
Amigo stated that it had not gotten sufficient interest from possible equity investors to fund the necessary £45 million to keep its business operating.
This is a very sad day for all of our staff who have worked so hard to address prior lending concerns and establish a new Amigo, as well as for our shareholders and other stakeholders who have supported us,” stated the chief executive, Danny Malone. It is also a sad day for creditors who are entitled to redress since they will now get a lesser amount of monetary compensation than they would have received had the new business criteria been fulfilled. This is a consequence of the fact that the new business conditions were not satisfied.
“We have worked hard to produce the best solution for creditors, colleagues, and shareholders, and we have left no stone unturned in our efforts to do so.”
According to the corporation, during the wind-down period, the loan book will continue to be collected, and personnel will continue to be paid for their work. There are less than 200 people working for the company.
In spite of putting customers at a “high risk” of being harmed, the Financial Conduct Authority decided not to penalize Amigo with a punishment of 73 million pounds last month because they believed it would lead to the company’s insolvency.
According to the findings of the investigation conducted by the watchdog, Amigo prioritized its own business interests over those of its customers. Specifically, Amigo failed to conduct an accurate assessment of whether customers or their guarantors (who were typically friends or family members) could afford to repay the loans that they applied for. Due to Amigo’s failures, the Financial Conduct Authority (FCA) predicted that one out of every four guarantors were required to step in and make payments on loans that were provided between November 2018 and March 2020.